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Sukuk on blockchain: a legal, regulatory and Shari'ah review

Kunhibava, Sherin and Mustapha, Zakariya and Muneeza, Aishath and Sa'ad, Auwal Adam and Karim, Mohammad Ershadul.

"This paper aims to explore issues arising from sukuk (Islamic bonds) on blockchain, including Shari'ah (Islamic law) and legal matters. A qualitative methodology is used in conducting this research where relevant literature on sukuk was reviewed. Through a doctrinal approach, the paper presents analyses on the practice of sukuk and sukuk on blockchain by discussing its legal, Shari'ah and regulatory issues. This culminates in a conceptual analysis of blockchain sukuk and its peculiar challenges. This paper reveals that digitizing sukuk issuance through blockchain remedies certain inefficiencies associated with sukuk transactions. Indeed, structuring sukuk on a blockchain platform can increase transparency of underlying sukuk assets and cash flows in addition to reducing costs and the number of intermediaries in sukuk transactions. The paper likewise brings to light legal, regulatory, Shari'ah and cyber risks associated with sukuk on blockchain that confront investors, practitioners and regulators. This calls for deeper collaboration in research among Shari'ah scholars, lawyers, regulators and information technology experts. As a pioneering subject, the paper notes the prospects of blockchain sukuk and the current dearth of literature on it. The paper would assist relevant Islamic capital market entities and authorities to determine the potential and impact of blockchain sukuk in their respective businesses and the financial system."

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Last Updated: 3rd March 2021