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Islamic finance and blockchain: can it bring greater impact? – Opinion

The 2030 agenda, interconnected universal objectives that promote sustainable and inclusive development for all to end poverty, protect the planet, peace and a more sustainable future for generations to come has been adopted by 193 countries under the United Nations in 2015.

"Poverty elimination is at the heart of the 2030 Agenda, as is the commitment to not leave anyone behind," said Achim Steiner, UNDP Development Director (UNDP) sustainable development to address the billions of people in the world who lived on less than US $ 2 a day.

The global agenda for poverty reduction is in line with maqasid al-shariah: objectives of sharia, the philosophical structure of many classical Islamic scholars such as al-Ghazali and al-Syatibi, to explain the wisdom behind the rules not only to develop the consciousness of God but to strengthen social cohesion.

The maqasid has an important aspect in the development of the Islamic economy which is maslahah or public interest. Money in Islam plays a "social role", which is why the main objectives of Islamic finance are the efficient distribution of wealth, the promotion of socio-economic justice and the guarantee of prosperity and well-being for all.

Meanwhile, the SDG funding gap is currently estimated at $ 2.5 trillion each year. According to Thomson Reuters projections, Islamic financial resources will grow to 3.2 trillion dollars by 2020. Describes the potential of Islamic finance to support SDGs by providing innovative financing solutions.

Compared to the individual contribution, giving zakat or sadaqah through formal institutions, by investing in Islamic bonds, can increase awareness, direct people in need and provide a more strategic and sustainable solution.

However, there are different challenges, inefficiency, lack of transparency in terms of gathering, managing, distributing and gathering the divergent views of Islamic scholars on how these should be dealt with in decisions or fatwa.

Blockchain technology can solve these problems. In short, blockchain is a decentralized ledger that can be continually growing as a list of records, transactions, values ​​and / or programs in a transparent and immutable way.

It has the ability to keep track of where your transactions are going, when they arrived and where they were used to govern inefficiency and organizational corruption, it means that greater transparency and accountability are the main concerns of zakat contributors.

The International Center for Education in Islamic Finance (INCEIF) is developing a blockchain application for zakat. Options are presented for sadaqah (charity) or zakat, Madhab or the user's school of thought follow – Shafi & # 39; i, Maliki, Hambali or Hanafi, the project choices, and then the user completes the payment.

After the zakat payment has been made, it is registered on a node in the blockchain. The Zakat payers will receive notification of the use and credibility of the project scorecard. It will get more trust among the payers that their zakat has reached the intended recipients.

Not only to track transactions, technology has developed to benefit society in terms of digital identities, smart contracts, food supply, fraud detection and will continue to grow.

Another example, smart contracts can be used for Islamic bonds. Flower finance exploits the smart contract in blockchain technology to increase efficiency by standardizing and automating the issuing process.

What differs from conventional offers is how to accelerate the legal and accounting process and the general overhead costs that lead to cost reduction. Furthermore, it does not require that institutions or recipients add cryptocurrency to their financial statements as the product supports local currency issuance.

Another blockchain project called HARA, a decentralized data exchange on blockchain-based agriculture. Because of the principles of profit sharing and risk, the problem in the field does not provide reliable income statements to assess risk and return for potential Islamic equity investors.

One of the reasons why they collect farmers' and farmers' market traders' data is to develop Islamic financial products and improve the transparency of agricultural ecosystem financial data by empowering data.

These features would represent a huge step forward for Islamic finance to reach more potential users and establish more efficient advertising akad or contract-based transaction with smart blockchain contracts like mudharabah, bai & al; salam, musharakah and the list goes on.

How is it for Indonesia? The largest Muslim population, a nation that hosts 12.7% of Muslims in the world, has unparalleled potential in realizing the SDGs using Islamic funding and funds.

According to BAZNAS, the amount of zakat collection in Indonesia, only in the formal institution, was reached at 5,000 billion dollars in 2016. Yet, BAZNAS (Badan Amil Zakat Nasional) discovered that the zakat fund's potential it is around Rp286 trillion ($ 19 billion) in 2015 with a method of extrapolation to GDP. A huge gap indeed.

"BAZNAS considers SDGs as a tool for achieving progress in Indonesia, in line with vision, ie well-being, poverty alleviation, improving quality human resources, public health and all other aspects of 39; empowerment, "says Ir. Nanan Mintarti, one of the BAZNAS commissioners.

Therefore, BAZNAS and UNDP Indonesia strengthen their partnership in which Indonesia can take a leading role in providing innovative funding, including funding and Islamic funds in the SSMART (South South Cooperation) platform for SDGs.

As above, Indonesia may be the center of the Islamic financial movement in achieving the development goals. It will bring greater impact if supported by blockchain technology.

Living in the middle of industry 4.0, an unprecedented technological revolution, development policy should ensure that no one has left behind. The use of technology must be parallel to the global movement on the implementation of the SDGs.

Although blockchain technology can interrupt Islamic finance, it is not as easy as flipping a coin.

The collaboration between the public and private sectors to ensure that its implementation pave the way for the implementation of the SDG is essential.


The writer is a student of Islamic economics and finance, Middle Eastern and Islamic scholars a school of strategic and global studies, University of Indonesia.

Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official position of The Jakarta Post.

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