How difficult to create a digital financial system based on Shariah law
Islamic banking and finance is a system based upon the rules of Shariah, which disallows the payment or taking of interest on loans. It places a great emphasis on ethical and fair financial transactions. This system is marked by its refusal to involve itself with interest-based financing, which is a primary element of traditional banking. Risk of the investment is shared, and the gains or losses are shared accordingly.
As per Shariah law, investment in intangible assets such as stocks, bonds and digital assets such as cryptocurrencies are acceptable. Such assets do not need to be backed by physical goods as long as they have some form of utility. Islamic finance provides a range of products and services, such as: mudarabah, musharakah, murabaha, ijara, and sukuk. For the production of a Shariah-compliant cryptocurrency, a group of specialists in islamic finance, technology, islamic scholars, financial advisors, and developers must unite to decide the design of the coin. This means that investors will partake in the profits and losses of the business project instead of being rewarded with a set rate of return for their investment.
A great case of a Shariah-compliant digital asset is (ISLM) built on HAQQ blockchain. In june 2022, IslamicCoin got a Fatwa for its Shariah consistency. Comparable to numerous cryptos, it follows a deflationary model, restraining new coins from being made whimsically. In addition, when a new ISLM is minted on the network, 10% goes to the evergreen DAO, a decentralized autonomous organization which invests the returns into islamic charities or online projects.
Andrey Kuznetsov and Mohammed AlKaff AlHashmi, co-founders of the IslamicCoin project spoke to Cointelegraph, mentioning how difficult it can be to devise a coin that abides Shariah law. This necessitates forming partnerships with fiscal institutions, states, and other entities, to guarantee that the coin gets proper recognition and is utilized in accordance with Islamic regulations.
Read the full article on Cointelegraph - https://cointelegraph.com/news/islam-and-crypto-how-digital-assets-can-comply-with-islamic-financial-law/amp
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