A large number of banks, clearing houses and trustee entities play a role in every bonds issuance, meaning high costs and high operational risk. The Islamic version of bonds, Sukuk securities, suffers from the same drawbacks as any standard bond issuance. Corda seeks to drive innovation to the industry by digitalising the lifecycle of said issuances. In 2018, Corda was used to produce a proof of concept for Sukuk Management to build a distributed ledger for registry purposes and to act as a central securities repository, reducing cost and time of issuance, and improving interoperability with other platforms. It would also have a feature to allow regulators and providers to communicate.
It is known that the Islamic Banking world is regulated differently and Shariah bodies have expressed their interest in using smart contracts to help ensure compliance in a highly regulated environment. The use of a distributed ledger to facilitate what otherwise is an operationally risky activity, should not only be attractive for control purposes but for performance enhancements. By reducing operational risk and costs of issuance (both in time and monetary terms), there will inevitably be more resources available for commercial activity and business creation, thereby increasing revenue.
Dubai is certainly not the first country to explore this route but when one of the wealthiest economies dives into such an innovative piece of technology for an industry that makes billions a day, it must mean that said technology is the next generation architecture for the Financial Industry. It will be very interesting to monitor how the Islamic Capital Markets continue operating and if Dubai, and other regions of the Middle East, benefit from R3’s technology.