Wethaq and R3 Collaborates to Tap the $120Billion Sukuk Market

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Wethaq, the Dubai based fintech startup, signed a strategic partnership with the blockchain technology company, R3 (R3 LLC).  Wethaq is aiming to tap the Islamic Capital Markets utilizing R3’s Corda (also known as CorDapps). They intend to develop a financial market base to support the issuing, regulation, and transaction of various securities in the Islamic Financial Market. Especially Sukuk securities.

On that note, the CEO of R3 stated:

Saudi Arabia and the wider Middle East region are areas where we see huge potential for Corda to modernize the economy and our partnership with Wethaq is a step towards achieving that.

The Annual Sukuk Report 2019 for the International Islamic Financial Market revealed that the total offerings of Sukuk in 2018 had reached $123.15 billion, which was a 5 percent increase from the value of 2017. In 2017, Sukuk’s issuance stood at $116.7 billion.

This year S&P ratings have estimated that Sukuk’s issuance would be the same as that of 2018. Asset-backed securities have been very active so, Sukuk securities, denote partial ownership in assets and they seem very promising.

The Sharia law (Islam’s legal system), which governs the financial market, outlaws charging of interests. Charging interest may be prohibited under the Islam Law, but rent is not. This makes some Sukuk monetary certificates function like bonds (‘ljara’). But, instead of paying interest, these Sukuks are seldom issued at a discount and are tied to an asset which is then leased. Most of the lease payment goes to the investors.  Therefore, at maturity, they yield a capital gain. This makes Sukuk securities, one of the most sought-after investments.

David E. Rutter, the CEO of R3, commented that: “Blockchain is driving an unprecedented period of innovation across capital markets, with more assets moving towards complete digitization.”

Mohammed Alsehli, the CEO of Wethaq, also talked about their partnership and the goals of the firms. He stated:

In building the next generation of financial market infrastructure for Sukuks we have found a valuable and trusted partner in R3 and its Corda Enterprise software. Our joint focus is on building world-class financial infrastructure in Saudi Arabia, in alignment with the Kingdom’s Vision 2030, and the UAE, pursuant to their ambitious fintech agenda, before we expand to the entire Middle East and South-East Asia.

Since 2018, Wethaq has been working on a pilot-concept for a blockchain solution to Sukuk management, which would not only comply with the Islam Law but have the distributed LEDGER operate as a registry plus the ‘central securities depository.’ It would also improve interoperability with other settlements and payments floors, and design a network for customers, providers, and regulators to communicate.

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