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

Abstract

Purpose – This paper aims to explore issues arising from sukuk (Islamic bonds) on blockchain, including Shariah (Islamic law) and legal matters.

Design/ methodology/ approach – 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, Shariʾah and regulatory issues. This culminates in a conceptual analysis of blockchains
sukuk and its peculiar challenges.

Findings – 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 cashflows in addition to reducing costs and the number of intermediaries in sukuk transactions. The paper likewise brings to light legal, regulatory, Shariah and cyber risks associated with sukuk on blockchain that confront investors, practitioners and regulators. This calls for deeper collaboration in research among Shariah scholars, lawyers, regulators and information technology experts.

Research limitations/implications – 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.

Practical implications - Blockchain sukuk will assist in addressing issues inherent in classical sukuk and in paving the way to innovative solutions that will facilitate and enhance the quality of sukuk transactions. For that, sukuk would require appropriate regulatory technology to address its governance and regulation peculiarities.

Originality/value – Integrating sukuk with blockchain technology will add value to it. The paper advances the idea that blockchain sukuk revolutionizes sukuk and enhances its practice against known inadequacies.

Keywords Blockchain, Blockchain technology, Legal issues, Regtech, Regulatory issues, Shariah, Sukuk

Paper type Research paper