Blocko startup partners with IRTI to build Islamic blockchain-based credit system
The Islamic Research and Training Institute has partnered with the Samsung-backed startup to develop a credit solutions system
The Islamic Research and Training Institute (IRTI) has partnered with Blocko, a startup backed by tech giant Samsung through the E24P consortium.
Founded by Won-Beom Kim in 2014, Blocko is an enterprise blockchain platform provider that offers multinational organisations the ability to develop, deploy, and maintain digital services on a secure distributed network. It offers a blockchain operating system and a development platform with APIs.
The IRTI is a member of the Islamic Development Bank (IsDB) Group and is committed to the knowledge creation and information of Islamic Economics and Finance. The institute has been at work for over four decades.
Acting Director-General of IRTI, Dr Sami Al-Suwailem, explained that while the Islamic finance market is growing, certain challenges have prevented it from achieving its full potential.
“The Islamic finance market is growing rapidly, with projections of a rise from around $2 trillion to an impressive $3.78 trillion by 2022. Yet certain technical and economic challenges have prevented the industry from truly flourishing,” Al-Suwailem said.
“Our new partnership with E24P aims to address this need by providing the infrastructure needed for the Islamic financial industry to deliver critical services to both the developed and developing world.”
The startup has managed to raise over $22.4 million over its lifetime from high-profile investors, such as Daesung Private Equity, KEB Hana Bank, Shinhan Bank, SparkLabs and Samsung. While the company is based in South Korea, it has established a presence in the Middle East and Europe.
There is a need to create innovative credit solutions for Islamic Finance because Shari’ah law prevents banks from charging interest on loans to their borrowers. Islamic banks usually offer financing to individuals and businesses via real economic transactions, such as joint ventures, leasing agreements, and other related models.
Since Islamic financial institutions are prohibited from collecting interest when offering credit financing, they need to develop a mechanism that encourages debtors to pay on time. A common practice amongst these institutions is to charge debtors with late fees, which are then donated to charity.
However, because Islamic banks are not allowed to incur any profit from these late payment charges, they also lack the incentive to collect such late fees and distribute them to charities in a timely manner.
The new system being developed aims to solve these problems through a novel incentive mechanism that encourages early repayment and contributes the fees to an insurance pool to covers involuntary defaults on credit.
Aside from Blocko, Kim co-founded the AERGO Blockchain Platform with Phil Zamani in 2018. AERGO works by allowing enterprises to transfer data without having to rely on an intermediary, while also offering the benefits of being integrated into existing systems and having flexible governance.