Photo: Hamid Rashid, CEO of fintech firm Finterra, with Andrew Lim and Shukor bin Mohsin of Harapan Capital at the launch of Waqf Chain in Kuala Lumpur on Feb 19, 2019. Photo courtesy Finterr

Islamic Finance

Fintech firm Finterra launches first-ever blockchain Islamic endowments crowdfunder


*This story has been updated to include comments from Mohd Daud Bakar

KUALA LUMPUR - The first-ever blockchain-based solution for waqf crowdfunding promises to bring more speed and liquidity to developing large tracts of Islamic endowments, its founder said at its launch in Kuala Lumpur on Tuesday.

Hamid Rashid, chief executive of Singapore-based fintech platform developer Finterra, announced on Feb 19 a system using smart contracts to facilitate charitable investments had gone live with 700,000 registered users following four months of pre-launch trials. The company started developing the blockchain platform in October 2017.

Waqf Chain, which is built on the Galactic blockchain technology, will allow waqf boards, non-governmental organisations (NGOs), corporate CSRs, trusts and other stakeholders to publish details about their projects in a bid to secure funding. 

“Using a blockchain and smart contracts, organisations can tap into the land and assets registered under the waqf board, develop them, generate revenue, pay part of the revenue as a lease cost and the rest goes back to investors who crowdfunded the development,” Rashid told Salaam Gateway.

Finterra’s new crowdfunder is not the first to target waqf. Middle East-focused Narwi, launched in 2015, allows donors to support microentrepreneurs by setting up an endowment, or “Narwi Waqf”. Since Narwi, successful blockchain use cases have rapidly led to innovations in the Islamic social finance sector.

With Waqf Chain, members of the public can create an account into which they deposit funds into a bank trust account, possibly on a standing order. These funds attract profit sharing from Islamic banks which pay back profits to depositors.

The investors can view projects such as charitable causes, investment opportunities and Islamic peer-to-peer lending on the Waqf Chain website, and decide where to channel their funds.

Waqf lands are donated to Muslim communities either for religious or philanthropic purposes. The Malaysian department of Department of Awqaf, Zakat and Hajj estimates there are over 11,000 hectares of waqf land across the country. According to a recent study, the value of waqf land was worth 4 billion Malaysian ringgit ($982.5 million) in 2017.

“Waqf is an extremely large initiative, but a lot of people don’t realise it’s not just charity, it is something that can morph into investments and peer-to-peer lending,” said Rashid.

As a platform provider, Finterra will not take on and deploy crowdfunders’ investments itself but will rely on banks and NGOs to perform these tasks.

SPEED WITH SMART CONTRACTS

A manual contract between a developer and financial institution could take on average two years to conclude.

Rashid claims the same process would now take no more than two weeks through the blockchain-based smart contract execution.

“Until now, [waqf] fund managers would be running all over the place trying to get investors and processing contracts. It was just taking too long,” he said.

“But through a blockchain, public users simply come onto the waqf platform, register their details, pass through the KYC [know your customer regulations] and AML [anti-money laundering requirements], which are automated. It makes the process more transparent and efficient,” Rashid added.

The smart contracts can be sent automatically from the platform and do not require a third party’s involvement. The blockchain technology makes such transactions trackable and irreversible.

Rashid believes blockchain smart contracts will have a “huge impact” on waqf projects by tapping into the liquidity that is locked into Islamic endowment lands.

As these are assets under trust by local Muslim communities, they cannot be sold. And because there is little appetite among institutions to offer capital to develop land assets that will not deliver a positive return on investment through the sale of units, “getting capital to do this will take forever,” he said.

“Smart contract is, I think, the only mechanism to create liquidity in those assets. These are assets which are under trust. You can’t sell them. There’s simply no feasible way you can develop them—to get capital to do so will take forever.”

PARTNERS

Two inaugural partners will source funding through Finterra’s platform.

Harapan Capital, an Islamic NGO, will employ it to seek capital for social projects in China, Indonesia and Malaysia.

Property developer Bentara Development is looking to raise money towards a 100 million ringgit ($24.6 million) project to build university halls of residence for underprivileged students on waqf land.

More partners are expected to come on board following activation of the platform, said Rashid.

Khalid Aziz, chief executive of Bentara Development, said its previous, conventional approach to fundraising hadn’t worked, prompting the developer to take a more novel approach to the process through crowdfunding and smart contracts on blockchain.

“We started this project three years ago and we went through the traditional ways to raise funding, like approaching prospective investors and institutions and suchlike. But it was rather unsuccessful, I’m afraid,” Aziz told Salaam Gateway.

A distributed ledger platform would in turn offer Bentara several benefits, including greater confidence, integrity and reach.

“The processes and systems are well known from A-Z, so you will know what to do to prevent issues cropping up all the way to the conclusion,” said Aziz .

“More importantly is the platform’s compliance with regulations. We are talking about multiple stakeholders and multiple regulators across jurisdictions.

“And thirdly, because it is global in reach, one go you are canvassing the whole global audience and prospects.”

The Islamic fintech industry has supporters in high places, none more so than Mohd Daud Bakar. The chairman of the Shariah Advisory Council of Bank Negara Malaysia, the central bank, is seen as one of the leading figures in Islamic finance globally and is a strong proponent of fintech.

Asked by Salaam Gateway to sum up the importance of recent blockchain developments such as the launch of Waqf Chain, he confirmed services like these are bound to make things “more efficient, more easy”.

“I think this is something that is really, really important for all of us in Islamic countries and in this industry,” he said.

($1 = 4.07 Malaysian ringgit)

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Crowdfunding for waqf lands could boost home ownership for Malaysia's low-income earners, say industry experts

(Reporting by Richard Whitehead; Editing by Emmy Abdul Alim emmy.alim@refinitiv.com)

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tags:

Blockchain
Fintech
Social finance
Start-up
Waqf
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Richard Whitehead