Islamic Finance

Malaysian Shariah advisory partners with blockchain company on solutions for Islamic banks


*This article has been corrected throughout to reflect that Inifinity Blockchain Ventures is not a Vietnamese company but is a Malaysian company wholly owned by Singapore-incorporated Infinity Blockchain Holdings Pte Ltd.

KUALA LUMPUR - A Malaysian Shariah advisory firm has signed a strategic partnership with a blockchain company to build solutions for Islamic banks.

Masryef will advise Infinity Blockchain Ventures Malaysia on integrating components of Islamic finance within distributed ledger systems.

“Our goal with this partnership is to be able to get Islamic banks to participate in a technology that will reduce the cost of doing business,” Khairil Anuar Mohd Noor, principal of Masryef Management House, told Salaam Gateway.

Masryef believes adopting blockchain technology will enhance Islamic banks’ operating efficiency, open doors to new opportunities, and perhaps most importantly, reduce potential fraud.

“Most of the Islamic products out there are still being managed by humans, systems are being run by people, who can turn bad and not follow the code of ethics. Blockchain gives us a system that is as smart as people, which is where the smart contract comes in,” said Khairil Anuar.

"It has all of the scenarios so you don’t have to worry about if your money is being wrongly spent, or wrongly raised, or the money has been corrupted. All of those can be managed and executed by smart contracts, and you can very easily track your money and the use of it through them.”

From a technology point of view, Islamic products must be treated very differently to those in conventional finance, said Cris D Tran, managing director for Infinity Blockchain Ventures Malaysia.

The company is wholly-owned by Singapore-incorporated Infinity Blockchain Holdings, within which it provides consultancy on blockchain architecture and development. It works with clients that include banks and corporations. 

Among the clients it has recently supported is major mango production and export co-operative My Xuong, for which it worked on improving the traceability of its exported fruit while also stamping out fakes trading under its name. 

Infinity Blockchain Ventures is now hoping to introduce Islamic financial institutions to its portfolio.

By Tran’s admittance, tempting over Islamic banks has been more difficult than it has been with conventional banks because of the complexity of Shariah banking and contracts.

“You can’t simply make up a product in Islamic finance, there are rules and standards to follow,” he said.

Infinity Blockchain Ventures' chief executive for special projects, Mohd Ridzal Sheriff, told Salaam Gateway that some banks might appear to be hoping blockchain will just disappear.

The former deputy secretary-general of the Ministry of International Trade and Industry and previously also head of global transaction banking at Deutsche Bank, Mohd Ridzal said not many banks are willing to sit down and go through a proper process of assessing how blockchain can actually help them.

“Maybe because it is because of banking protection rules, maybe it’s because they don’t want to think about it—there’s no incentive to think about it. Maybe the idea that somehow even banking is being threatened by disintermediation is not really accepted. 

“We are at a point where we need to get some really in-depth discussions going,” he said.

These could be discussions about the use of blockchain in non-financial processes, such as the way people use customer service or how a product can be tracked along the supply chain.

“I don’t know if there is some aversion to new technology, or if there is the issue that changing anything in a banking environment costs a lot of money,” said Mohd Ridzal.

“They say: unless it’s broken, I’d rather not know about something that is new.”

The deal between the blockchain developer and the Shariah financial advisor will involve “blockchain community-building” including in Islamic banking, fintech and digital banking.

The partnership includes raising blockchain awareness through training, research and events and also involves a joint effort in providing consulting services to financial institutions in Southeast Asia and the Middle East.

CATCHING UP WITH MIDEAST

Malaysia might always have been in the lead for developing new Islamic finance technology, but Middle East digital firms tend to be first to carry them out, according to Masryef.

“They (in the Middle East) will be the first to implement, even though they are last to come up with the idea,” said Khairil Anuar.

“I really respect them and appreciate them for how much they embrace technology in the Middle East. Malaysia used to be ahead of them, but now Malaysia is behind.”

The general sentiment is felt at the government level, with the country’s digital agency recognising the need to accelerate the growth of its digital economy.

In June, the Malaysia Digital Economy Corporation (MDEC) said it will push for government approval for a visa programme for overseas tech freelancers, starting with blockchain jobs.

Khairil Anuar suggests that by encouraging more banks to adopt blockchain technology by stressing its operational advantages, Malaysia could not only retain its position of leadership in Islamic finance tech solutions, but maybe even hold on to it.

Infinity Blockchain Ventures' Tran agrees.

“We see the need for Malaysia to be the leader in this area. We have been working with Universiti Malaya to conduct a proper study on Islamic finance and how blockchain can be brought into the system,” said Tran.

He points out that he is currently in discussions to iterate a bank in the Middle East to blockchain.

“I can share that news so that fellow players in Malaysia will understand they need to catch up, to get to that leading position so they won’t be caught behind,” he added.

(Reporting by Richard Whitehead; Editing by Emmy Abdul Alim [email protected])

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Richard Whitehead