Restricted by international sanctions, the Iran Fara Bourse is hoping that by implementing blockchain technology in its debt capital market offering processes, foreign investors would be more receptive to entering the market.
With outstanding Sukuk valued at IRR916.19 trillion (US$21.75 billion) at the end of 2018, the Iranian Sukuk market is relatively vibrant although it remains a predominantly domestic game. Legal restrictions placed by sanctions from Western powers are mainly to blame however other forces are also at play including potential Shariah incompatibility and governance concerns. Blockchain, hailed as a key driver of market transparency and efficiency, could assuage such concerns.
‘Blockchain Sukuk’ or Sukuk issuance made using distributed ledger technology is not completely novel: Indonesia’s microfinance fintech platform Blossom Finance was the first to introduce Sukuk papers on the blockchain platform while Al Hilal Bank in the UAE became the first bank last year to sell Sukuk facilitated by the same technology. And now, the Iran Fara Bourse (IFB) is working on enabling such offerings as well.
But whether it will see the light of day remains to be seen as the Iranian exchange, which is currently at the research and development stage, will have to grapple with multiple issues including standardization of documentation and cybersecurity among others.
“The development of the right infrastructure, both legal and technological, is costly and time-consuming,” summarizes Mahsa Tavakoli, the head of international affairs at the Iran Fara Bourse. Only a practical solution making Sukuk issuance genuinely easier will be accepted by the market, she says.