An Indonesian Islamic microfinance cooperative, BMT Bina Ummah, has raised 710 million rupiah (US$50,000) through a primary sukuk issuance on the blockchain through the SmartSukuk platform of Blossom Finance. Structured under the Shariah principle of mudaraba (profit sharing), the offering, announced on October 16, has a tenor of one year, with the proceeds to be used to expand financing for local entrepreneurs.
BMT Bina is an Islamic microfinance institution based in Yogyakarta that supports micro-SMEs and entrepreneurs who are typically excluded from conventional financing support. “The additional funds provided by this sukuk offers longer term stable funding and increases the overall amount of financing that we can offer our members,” says BMT Bina general manager Arif Yuliyanto.
As the world’s first primary sukuk issuance on a public blockchain and also the world’s first micro sukuk, this private placement issuance highlights two growing trends within Islamic capital markets: digital innovation and an increasing focus on social impact finance.
Blossom Finance CEO Matthew Martin says the SmartSukuk platform removes the conventional barriers to social impact investing by making micro investments feasible, transparent and ultimately tradeable.
“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,” Martin adds.
The impact investing platform of Blossom Finance is the first to fund social impact projects through a blockchain-based sukuk. Blossom Finance’s SmartSukuk utilizes Ethereum smart contracts, which is essentially a computer programme 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 Finance’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, chief strategy and risk officer of Blossom Finance. “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 Finance’s sukuk issued on the blockchain is also notable as it is based solely on mudaraba - an Islamic finance contract utilizing profit-sharing. Typically, in a sukuk, mudaraba profit-sharing is combined with other Islamic finance contracts to synthesize a periodic payment of a fixed amount.
Although Blossom Finance’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 instance, 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 Finance’s sukuk may be completed digitally, including a fully digital KYC process.
Founded in 2014, Blossom Finance aims to increase the availability of Islamic financial services using technology. Since 2015, it has been helping microfinance institutions in Indonesia raise funds from international investors to finance microbusinesses aimed at reducing poverty.