The blockchain sector is growing despite the massive lockdowns due to the coronavirus pandemic. In that context, the research arm of Saudi Arabia’s Islamic Development Bank Group has announced on June 16 that it wants to develop a blockchain-based smart credit management infrastructure.
The bank’s Islamic Research and Training Institute, or IRTI, has partnered with Blocko, a Samsung-backed blockchain provider. This new partnership comes as a portion of the E24P regional consortium that was launched by Blocko in April. The consortium targets to operate in the Middle East, South-East Asia, and Africa.
Mitigating Technical And Economic Problems
The Islamic finance sector is expected to grow from around $2 trillion to $3.78 trillion by 2022. In that context, the director-general of IRTI, Dr. Sami Al Suwailem, is convinced that several technical and economic challenges exist which prevent the industry from flourishing excellently.
As opposed to traditional financial organizations, the Islamic banks never charge any form of interest on loans and they do not also penalize the loan defaulters. Instead, they charge a late fee that is allegedly donated to charity.
Nevertheless, this method of operation is not without its fair share of challenges. It gets rid of the urgency for the borrowers to pay back their loans. Moreover, these types of banks encounter the challenge of efficiently distributing the late fees to charity.
The smart credit management system that is currently being designed and created by E24P and IRTI will operate on the Aergo hybrid blockchain. Once it is completed, the system is expected to put an incentive mechanism in place that will encourage borrowers to make timely repayments. Also, it will automatically contribute the fees to insurance pools that cover the loan defaults.
An Open, Secure, and Transparent Blockchain Credit System
The new blockchain credit system will help both the participating Islamic banks and many other financial institutions. By using the system, the institutions can conduct credit assessments securely and transparently. That will be done without compromising the privacy of the involved parties.
According to the CEO of E24P Phil Zamani, the system will enable banks to:
“deliver a truly unique solution that has the potential to have a significant impact on the world of Islamic finance.”
It might also reduce the costs and operation difficulties through the inclusion of the otherwise restricted financing functions which include credit history, credit rating, credit insurance, and credit reporting.
English
Arabic
Dutch
French
German
Italian
Polish
Portuguese
Spanish