IRTI Partnered with Samsung-Backed Blockchain Technology Firm to Develop Blockchain-Based Credit Management System for Arab Bank
June 16, 2020 2:55 pm
The research arm of Suadi Arabia’s Islamic Development Bank Group is striving to develop a blockchain-based smart credit management platform.
This credit enhancement system will reduce the risks associated with credit financing to businesses and consumers through the use of new economic incentive models and advanced implementations of hybrid blockchain technology. To develop an innovative, blockchain-based smart credit management system, the bank’s Islamic Research and Training Institute, or IRTI, is collaborating with the Samsung-backed blockchain provider Blocko as a part of the E24P regional consortium launched by Blocko across the Middle East, Africa, and South-East Asia in April.
Technical and Economic Challenges
By 2022, the Islamic finance industry is predicted to grow from $2 trillion to $3.78 trillion. The director-general of IRTI, Dr. Sami Al Suwailem, says there still are various technical and economic challenges that “prevent the industry from truly flourishing.”
Islamic banks do not charge interest on loans or penalise loan defaulters, unlike traditional financial organizations. They rather charge a late fee that is purportedly donated to charity. Though, this strategy is not without its obstacles, as it reduces the seriousness for borrowers to pay back their loans. Moreover, such banks also face the difficulty of efficiently distributing the late fees to charity.
The smart credit management system being developed by E24P and IRTI will be based on the Aergo hybrid blockchain and is expected to put an incentive mechanism in place that will boost timely repayments. It will also automatically contribute the fees to insurance pools that cover loan failures.
A Secure and transparent credit system
The blockchain credit system is said to improve both Islamic banks and other financial institutions manage credit assessments more securely and transparently, without jeopardising the privacy of the involved parties.
“The system will help banks, deliver a truly unique solution that has the potential to have a significant impact on the world of Islamic finance.”– Phil Zamani, the CEO of E24P
It may further reduce the costs and operation difficulties by including the otherwise restricted financing functions such as credit reporting, credit rating, credit history, credit insurance and on-time payment incentives, to reduce costs and improve operational efficiencies.