Blossom’s sukuk breaks new ground for Islamic capital market innovation on multiple fronts as the first primary issuance on a public blockchain, the first “micro sukuk”, and its use of a pure profit-sharing structure.
JAKARTA, Indonesia. October 16, 2019 – An Indonesian microfinance institution - BMT Bina Ummah - has raised 710 Million Indonesian Rupiah ($50,000 USD) through a primary sukuk issuance on the blockchain via Blossom Finance’s SmartSukuk™ platform. Funds raised in the offering, which uses a mudarabah (profit sharing) structure denominated in IDR and carries a maturity of one year, will be used by the Yogyakarta-based Islamic microfinance cooperative to expand financing for local entrepreneurs.
As the world’s first primary sukuk issuance on a public blockchain and also the world’s first “micro sukuk”, this issuance highlights two growing trends within Islamic capital markets: digital innovation and an increasing focus on social impact finance.
Blossom’s impact investing platform is the first to fund social impact projects through a blockchain-based sukuk. Blossom’s SmartSukuk™ utilizes Ethereum “smart contracts” which is essentially a computer program that runs in the blockchain. All records, assignments, calculations, and payments pertaining to the sukuk are managed via the smart contract, which leaves behind an indelible audit-trail at every step of the way.
“Blossom’s SmartSukuk™ removes the conventional barriers to social impact investing by making micro investments feasible, transparent, and ultimately tradeable” notes Blossom CEO Matthew J. Martin. “Containerized freight reduced logistics costs which, in turn, brought global commerce within reach of virtually anyone across the globe. In much the same way, tokenized assets reduce intermediary costs, which makes global finance more accessible regardless of size or borders.”
Blossom’s platform allows both retail and institutional impact investing via a browser-based investor dashboard, although more tech-forward investors may also elect to interact directly with their investments via the Ethereum blockchain.
“Through Fintech innovation, the Islamic finance industry finally has the means to fulfil the ethical, social, and environmental promise of the sector” notes Khalid Howladar, credit and sukuk industry veteran and Chief Strategy & Risk Officer of Blossom. “Unlike the majority of issuances, this pioneering sukuk offers a genuine profit share for investors – not fixed income – and is closer to the Islamic investment principles that discourage excessive debt and leverage.”
The structure of Blossom’s sukuk issued on the blockchain is also notable in that it is based solely on mudarabah - an Islamic finance contract utilizing profit sharing. Typically in a sukuk, mudarabah profit sharing is combined with other Islamic finance contracts to synthesize a periodic payments of a fixed amount.
Although Blossom’s sukuk utilizes a public blockchain, it incorporates several layers of permission and identify verification: the smart contract only accepts inbound transfers from pre-approved ethereum wallet addresses. Transfers of sukuk holdings, for example, are only allowed by approved parties; this type of control is important in many jurisdictions which disallow or impose additional requirements on secondary sale of securities. The entire subscription and investment process for Blossom’s sukuk may be completed digitally, including a fully digital “KYC” process.
Blossom’s platform supports both subscription payments and periodic payments made via virtually any crypto or tokenized asset (ERC20) as well as bank-held fiat money. Tokenized assets are a digital representation of real-world value tracked in a blockchain. The most popular tokenized assets follow a widely popular global standard - known as ERC20 - which enables digital exchange via peer-to-peer or secondary markets. Blossom’s SmartSukuk™ comply with the ERC20 standard, and are therefore compatible with virtually all custodial and and exchange solutions.
Sukuk is a shariah-compliant capital market instrument, typically used by sovereigns (governments) and large corporations to raise funds. Unlike bonds, which are based on the right to collect a debt and interest payments, sukuk are based on ownership of assets and periodic profit payments generated by those assets.
According to the IIFM Sukuk Market Report (8th Edition), the total global sukuk issuances in 2018 topped $123.15 Billion USD, an increase of +5% over 2017. The Muslim-majority countries of Malaysia, Indonesia, UAE, and Saudi Arabia collectively make up the majority of all sukuk issuances.
About BMT Bina Ummah
KSU Syariah BMT Bina Ummah is an Islamic microfinance institution in Yogyakarta, Indonesia that supports micro-SMEs and entrepreneurs who are typically excluded from conventional financing support. Founded in 1995, BMT Bina Ummah has around 25,000 members (depositors) and has successfully eliminated predatory lending and loan-sharking from their service area through their social finance model.
“The additional funds provided by this [sukuk] offers longer term stable funding and increases the overall amount of financing we can offer our members” says Arif Yuliyanto, General Manager of BMT Bina Ummah. “We fully anticipate this successful issuance will be the first of many more.”
BMT, which stands for “Baitul Maal wa Tamwil”, incorporates aspects of commercial Islamic financing with non-profit social impact endeavors. Originally started in Indonesia in the late 90s in response to the Asian financial crisis as a way to spur grass-roots economic growth and job creation, the BMT underwriting model avoids consumptive loans, electing instead to finance productive business activity with the aim of increasing family household income. BMT’s in Indonesia come in a variety of sizes with assets under management of less than $1M USD up to and beyond $250M USD equivalent.
About Blossom Finance
Blossom Labs, Inc. is a US Delaware company, operationally headquartered in Jakarta. Founded in 2014, Blossom aims to increase the availability of Islamic financial services using technology.
Since 2015, Blossom has been helping microfinance institutions in Indonesia raise funds from international investors to fund micro-businesses aimed at reducing poverty. Blossom’s SmartSukuk™ platform helps institutions raise cost-effective, Shariah-compliant financing from global investors using blockchain technology.
- For information about Blossom’s Smart Sukuk, visit: https://bossomfinance.com/sukuk
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