World first digital sukuk targets Bitcoin generation

Funds from the sukuk will be passed to an Indonesian microfinance institution, which will then use it to finance budding micro-entrepreneurs. (Supplied)
Updated 09 October 2018

World first digital sukuk targets Bitcoin generation

  • Blossom Finance hopes its pioneering products can enable retail investors to benefit from the kinds of gains usually only enjoyed by institutions and the ultra-wealthy
  • After creating their user account, members will be able to view various projects (new and old) on the Blossom portal that are funded by digital sukuks

BARCELONA: Later this year, what purports to the world’s first digital sukuk will launch, bringing Sharia-compliant social impact investing to the masses.
Blossom Finance — an Indonesia-based, US-owned and regulated company that’s guided by one of the Gulf’s most renowned experts in Islamic finance — hopes its pioneering products can enable retail investors to benefit from the kinds of gains usually only enjoyed by institutions and the ultra-wealthy.
Digital sukuk can also help steer Islamic finance back toward a higher purpose of supporting the communities in which it operates.
“Islamic finance has yet to realize its true value proposition. Most of it is built on replicating conventional finance, which may be a necessary step but isn’t particularly benefitting society,” said Khalid Howladar, chief strategy and risk officer at Blossom Finance.
“Maybe one person can’t change the world, but I saw within Blossom the scope to help take Islamic Finance to the next level and to support a more investment-based — versus debt-based — economy.
“The core premise of Blossom is to be an active social impact investing platform that will use digital sukuk to raise funds from platform members worldwide.”
 So, how will the company’s digital sukuk work?
There is no paper. Everything is online and digital at blossomfinance.com. After creating their user account, members will be able to view various projects (new and old) on the Blossom portal that are funded by digital sukuks. They can invest in any of these sukuk and trade them online.
Blossom’s debut digital sukuk will launch before year-end and aims to return around 8-10 percent over its one-year duration. However, unlike the bulk of the global sukuk market, this will be a genuine profit-sharing instrument with variable — not fixed — returns.
With potential investors from Chile to New Zealand registering their interest in the sukuk, Blossom hopes to raise around $500,000 to $1 million. The proceeds will be passed to an Indonesian microfinance institution, which will then use it to finance budding micro-entrepreneurs.
“We would rather the sukuk be relatively short in order to reduce the risk, at least at the outset,” said Howladar, who is also managing director and founder of Dubai’s Acreditus, a boutique risk, ratings, regulatory and Islamic finance advisory practice.
“It will also help instil good practices in the microfinance institution as — for the first sukuk — they need the money back after the year. The microfinance institution can then finance the entrepreneurs again providing all requirements are met.”
A second sukuk, which will be written on an Ethereum blockchain and is slated to launch in the first half of 2019, will also be focused on Indonesia’s microfinance industry. Blossom may then issue a digital sukuk to fund a recycling firm that’s found an innovative way to safely dispose of plastic and medical waste, with plastic residue used to lay roads. A fourth potential project is for an asset-backed sukuk that would fund a hospital expansion.
Previously, the administrative requirements — such as taking customer details, allocating unique and unforgeable reference numbers and distributing profits – would have required an expensive corporate and technology infrastructure to support the sukuk.
“As a result, your investment sizes would have to be tens if not hundreds of thousands of dollars per person, because you needed scale to make it work,” said Howladar, who was formerly Moody’s Global Head of Islamic Finance and GCC Banks.
As profit-sharing instruments, the sukuk do not provide guaranteed returns of profit or capital, but that added risk is reflected in the higher potential profits to be made from investing. The minimum investment size will vary according to the sukuk and will start from around $100 for blockchain-based sukuk, while for the first digital sukuk it will likely be about $5,000 reflecting the current real-world onboarding costs.
“Only when we are fully operational can we use tech to bring the subscription threshold down,” said Howladar.
“Hopefully Blossom’s platform can help democratize the investment process so that you don’t need to have a brokerage account or access to a ‘Swiss’ private bank to invest your money in markets that over the long term generate returns that are typically more than bank deposits.”
The sukuk will have an Indonesian counterparty bank that can receive investors’ funds.


Global leaders eye ‘modest rebound’

Updated 4 min 44 sec ago

Global leaders eye ‘modest rebound’

  • Trade wars dominate discussions among G20 nations as Saudi Arabia begins preparations to chair the group in 2020

WASHINGTON: The world’s finance leaders agree that growth has slowed, but they remain hopeful for a modest rebound next year as long as trade and geopolitical tensions do not worsen.

That was the assessment from finance ministers and central bank governors of the Group of 20 major industrial countries.

Those officials met ahead of discussions on Saturday with the policy-setting panels of the 189-nation International Monetary Fund and the its sister lending organization, the World Bank.

The leaders of those two organizations appealed to their member countries on to resolve the widening disagreements on trade, climate change and other issues, warning that the continued diversions threatened to worsen the current global slowdown.

Japanese Finance Minister Taro Aso, the current chair of the G20 finance group, said that while current conditions are less than optimal, there was still hope that conditions will improve.

Speaking after the G20 discussions ended, Aso said: “We broadly agreed that the global economic expansion continues, but its pace remains weak.”

Aso said the group felt that the risks remained weighted to the downside with the major threats coming from trade wars and geopolitical tensions. But he said the expectation was that growth would pick up in 2020.

Japan served as chair of the G20 this year, a position that will be taken by Saudi Arabia in 2020.

The US is represented at the meetings by Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell.

The IMF in its updated economic outlook prepared for this week’s meetings projected the global economy would expand by just 3 percent this year, the weakest showing in a decade, with 90 percent of the globe experiencing a downshift in growth this year. But it is forecasting growth will accelerate slightly to 3.4 percent in 2020, still below the 3.6 percent global growth seen in 2018.

“Trade tensions are now taking a toll on business confidence and investment,” IMF Managing Director Kristalina Georgieva said in an opening speech to finance officials on Friday.

Georgieva, a Bulgarian economist who had been the No. 2 official at the World Bank, recognized the accomplishments of her IMF predecessor, Christine Lagarde, the first woman to head that agency. Lagarde was in the audience for the speech.

“As someone who grew up behind the Iron Curtain, I could never have expected to lead the IMF,” Georgieva said. She noted she had witnessed the devastation of bad economic policies when her mother lost 98 percent of her life savings during a period of hyperinflation in the 1990s in Bulgaria.

World Bank President David Malpass said the slowdown in global growth was hurting efforts to help the 700 million people around the world living in extreme poverty, especially in nations trying to cope with a flood of refugees from regional conflicts.

“Many countries are facing fragility, conflict and violence, making development even more urgent and difficult,” he said.

The fall meetings of the IMF and World Bank meetings were expected to be dominated by the trade disputes triggered by the Trump administration’s get-tough policies aimed at lowering America’s huge trade deficits and boosting US manufacturing jobs. So far, those efforts have made little headway.

In addition to the battle between the US and China, higher US tariffs went into effect Friday on $7.5 billion in European goods coming into the US in a dispute involving airplane subsidies.

Bruno Le Maire, France’s finance minister, said that China probably would be the real winner in the US-EU trade fight. He said the EU was ready to negotiate a settlement to avoid the tariffs but so far, the Trump administration has rejected those efforts.

“From the beginning, we have made it clear that we want to avoid a trade war,” Le Maire said. “The response from the US administration has been a closed door.”

Georgieva said a tentative US-China trade agreement announced last week should lessen the damage to the global economy slightly, but solid global growth would not return until the two countries resolved their differences and all countries moved to modernize the rules of global trade to lessen future disputes.