🌏Building a Blockchain based Miniature Islamic Economy

A financial system at the fundamental level is a sum of financial contracts. The contracts facilitate economic transactions between parties. They serve as a link between individuals or parties who have surplus funds and those who are in need of funds. They facilitate the flow of funds within the economy. The contracts are created by financial institutions and in the financial markets. The contracts require mutual consent of two parties.

In an Islamic or Shariah-compliant financial system, the contracts must comply with several Shariah norms as well. Shariah condemns unfair dealings or unjustified actions that would lead to economic injustice or exploitation. It prohibits any unjustified increase in wealth (riba), fraud or deception (ghish), cheating (tadlis), uncertainty and lack of clarity (gharar), elements of gambling (qimar), overpricing (ghubn) and bribery (rishwah). The financial contracts between parties in a Shariah economy must be free from these prohibitions. An Islamic financial system provides a linkage between savers and investors through a range of financial contracts that do not violate these Shariah norms.

Shariah-Compliant Contracts

Islamic scholars have not only established the basic principles and norms, but also identified the contractual mechanisms that conform to these norms and do not violate them in any manner. Let me now provide you with an overview of the various financial products and the underlying contractual mechanisms. These contracts, called Shariah-nominate contracts or uqud are extensively discussed in literature on Islamic law (fiqh) and one may find their finer details in any standard classical text of fiqh.

There are exchange-based contracts, such as, murabaha, bai-bithaman-ajil, ijara, salam, istisna, istijrar that create debt. There are participatory or equity-based contracts, such as, mudharaba and musharaka. There are contracts of agency or wakalah and of fee or ujr. These contracts relate to the for-profit sector of the economy. One may earn halal income from these contracts. Secondly, there are deposit contracts, such as, wadiah and amana; guarantee contracts, such as, kafala and loan contracts, such as, qard al-hasan that relate to the not-for-profit sector of the economy. There is no scope to earn halal income; one can only recover actual costs of the transaction, if any. And finally, we have the institutions of sadaqah (free donations), zakat (compulsory annual levy) and waqf (endowments) that relate to the philanthropy sector of the economy.

Can technology help us better design and execute these contracts?

The trichotomy of an Islamic economy into for-profit, not-for-profit and philanthropy sectors implies that the above three classes of contracts are at the heart of an Islamic financial system. Let us now bring in the blockchain technology here. This emerging technology permits us to design smart contracts that can replace the classical Shariah-legal contracts.

IBF Net, which stands for the Islamic business and finance network, has embarked on an interesting initiative to build a miniature Islamic economy on the blockchain using Algorand protocol. So far it has developed several platforms to cater to the three sectors of an Islamic economy and introduced a token IBFX to facilitate cost-less transactions within the Network.

The Benevolence platform seeks to mainstream and institutionalise charitable and benevolent action (sadaqah) in terms of contribution of eorts and of assets. It allows project owners to mobilise donations of cash as well as volunteering hours in a time-bound manner.

The Credence platform is a custodial service provider that facilitates conversion of various records, documents, certificates, endowment deeds etc. into non-fungible tokens ensuring their safe storage, perpetual and transparent access.

The Affuence platform is a marketplace that facilitates conversion of various assets into digital assets in the form of non-fungible tokens and their auction/sale in a transparent environment along with ensuring the flow of royalties and other legal payments to original creators through smart contracts. It has a unique feature of interest-free financing (qard) option based on collateral (rahn) of digital assets.

The Essence/ Excellence platform is a marketplace that seeks to bring together buyers and sellers of halal goods and services including for-profit halal financial services. The Excellence platform is restricted to sale of e-learning courses.

IRSHAD which stands for Intelligent Robo Shariah Advisor is an AI-powered chatbot that is well-equipped to engage with the user in a conversation regarding Zakat as an economic institution of philanthropy and empowerment of the poor and marginalized sections of the society. It is in the process of acquiring intelligence on Islamic inheritance and personal financial planning.

In another interesting development, the IBFNEX network and the AI-powered solutions have been integrated with and made part of a metaverse called NETVERSE employing web 3.0 technologies. Netverse is the world's first metaverse on Algorand blockchain and first Shariah-compliant metaverse on any blockchain.

The primary factor influencing the pace of introduction of new platforms, solutions and use cases driven by the blockchain and the immersive technologies is regulatory approval and compliance.