Disrupting Islamic international trade finance using blockchain technology

• Main Authors: Adam Sa'ad, Auwal, Mohd Nor, Rizal, Engku Ali, Engku Rabiah Adawiah, Salina, Kassim
• Other Authors: Sarea, Adel M.
• Format: Book Chapter
• Language: English
• Published: Routledge 2021
• Subjects: BPC Science and Technology in Islam; BPC175 Islam and engineering. Sustainable engineering. Sustainable building; BPH Islamic Economics
• Online Access: http://irep.iium.edu.my/96865/1/96865_Disrupting%20Islamic%20international%20trade%20finance.pdf; http://irep.iium.edu.my/96865/

This paper discusses the feasibility of using disruptive technology in Islamic international trade finance by implementing the novel wakalah smart contract based on blockchain technology. It is believed that implementing this innovative approach could facilitate international trade transactions using blockchain technology. Shari’ah-related issues of the novel FinTech enhancement are also highlighted to ensure the model’s Shari’ah compliance. An in-depth and critical review of the current evolution in Islamic Financial Technology (FinTech), international trade, the smart contract, and blockchain technology was undertaken, and is the basis of the proposal to implement the wakalah model based on blockchain technology to enhance international Islamic trade finance. The study finds that the wakalah model of international trade can be implemented on Ethereum blockchain, which is based on the smart contract and tagged as the wakalah smart contract. This is to help facilitate the execution of transactions in a secure, trusted, and faster way compared to the traditional wakalah contract. Islamic financial institutions (IFIs) are encouraged to explore the practicality of this model. This is because the model has the potential to assist entrepreneurs, international business players, and IFIs to address the many issues currently faced by international trade finance. Despite the critical importance of international trade finance (ITF) in supporting global trade and economic transactions, studies in this area have been limited, especially in relation to Islamic banking and finance (IBF). In particular, the Islamic letter of credit introduced by several Islamic banks had its basis in different Shari’ah principles that permitted the banks to participate in the transactions as agents or shareholders in joint venture businesses with the clients. The advent of Islamic FinTech has been a radical development in Islamic banking and finance. Nevertheless, Islamic FinTech has evolved into a very crucial instrument in the Islamic financial industry to develop ITF. Thus, the Islamic FinTech model will be more cost effective and involve digital technology and automation to provide an alternative option to traditional financing.