Islamic banking which carries with it higher administrative costs than conventional banking could be benefited with the implementation of blockchain technology.
The two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest.
Blockchain-based banking is considered the next frontier in banking that will usher in a new era of decentralization and disrupt the centralized banking system. Islamic banking is a USD 3 trillion industry worldwide particularly popular in North African, South Asian and Middle Eastern countries. Its principles involve zero interest rates and focus on more control of one’s finances than the conventional banking system.
Financial Institutions such as Hada DBank, a promising new startup, will help increase transparency and bring back control to the average Islamic Bank user. For this purpose, Hada DBank is involved in various corporate partnerships that are cementing the bank’s status as the premier blockchain Islamic bank.
However, fees are an issue in traditional Islamic banking, the main reason being that the system requires higher transactional costs which cover some legal and administrative processes not required in conventional banking.
Blockchain banking in automating some of these processes due to encoding terms and including them in its smart contract system can alleviate some of the associated legal and administrative processes, reducing both cost and the risk of fraud.
In Islamic banking, all financial transactions must comply with Sharia Law, where debt cannot be created unless backed with underlying assets. Mining is acceptable as there is no aspect of either debt or lending involved in the process. According to Islamic law, items falling under the ribawi category (such as gold or silver) must be exchanged in equal measure and with immediate transfer of possession, otherwise, transactions may involve riba or usury, a major prohibition in Islam.
UAE-based startup Adab Solutions has launched the world’s first cryptocurrency exchange that operates with full Sharia law compliance. The exchange will be overseen by an in-house Sharia Advisory Board (SAB) comprised of independent experts that will ensure the operations unfailingly remain within the jurisdiction of Islamic law.
As the fastest growing religion in the world, with Muslims now representing 23% of the world’s population, Bitcoin has become an important issue for financial authorities. Last year, the International Monetary Fund (IMF) held its first formal discussion about Islamic banking needs in the Muslim community for the first time.
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