R3 Partners With Dubai Firm to Tap $120 Billion Sukuk Market

R3 struck a strategic partnership with Dubai-based fintech startup, Wethaq, to build next-generation financial architecture for Islamic capital markets.

Wethaq, a “platform-as-a-service” firm, aims to use R3 Corda’s blockchain to manage the pre-sale, issuance, management and financialization of Sukuk securities, Islamic financial certificates similar to bonds.

According to the International Islamic Financial Market Annual Sukuk Report 2019, the total issuance of Sukuk reached $123.15 billion in 2018, representing a 5 percent increase from $116.7 billion in 2017.

The blockchain platform will digitize Sukuk, decreasing both the cost and time of issuance, a process that currently involves input from a number of banks, clearing houses and trustee entities. Corda will streamline this “lifecycle.” Further, Corda may enable wider distribution, and therefore more issuers and investors, by standardizing the digital assets with global financial architecture.

David E. Rutter, CEO of R3, said, “Blockchain is driving an unprecedented period of innovation across capital markets, with more assets moving towards complete digitization,” adding:

“Saudi Arabia and the wider Middle East region are areas where we see huge potential for Corda to modernize the economy and our partnership with Wethaq is a step towards achieving that.”

Beginning in 2018, Wethaq began working on a proof-of-concept for a blockchain solution to Sukuk management. The aim being to have distributed ledger operate as a registry and central securities depository, improve interoperability with other settlements and payments platforms, and create a network for market participants, providers and regulators to communicate.

The firm also sought regulatory approval from jurisdictional and Shariah bodies. In light of the highly regulated Islamic environment, “the employability of ‘smart clauses’ gives Shariah boards the opportunity to ensure Shariah compliance by building and mapping real world Shariah requirements within the structure itself,” R3 and Wethaq wrote in a joint report.

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