Islamic bonds look to tap social finance, blockchain tools

Oct 24 (Reuters) - Plans to design Islamic bonds, or sukuk, linked to socially-conscious finance could help mobilise large pools of assets across the Muslim world and increase the impact of Islamic finance, industry experts said on Wednesday.

Islamic financial firms are incorporating social elements, such as environmentally-friendly and sustainable practices, to widen their appeal beyond religiously-minded customers in the Gulf and Southeast Asia.

The Saudi-based Islamic Development Bank is now working on a sukuk linked to Islamic endowments, known as waqf, Said Bouheraoua, Director of Research at the International Sharia Research Academy for Islamic Finance (ISRA) said at an industry conference in Bahrain.

The multilateral bank has appointed the consulting arm of ISRA to advise on the sukuk worth around $200 million, Bouheraoua said during the event hosted by the Accounting and Auditing Organisation for Islamic Financial Institutions.

In a waqf-linked sukuk, proceeds are used for social projects and any excess yield is reinvested in the waqf assets.

The proposed sukuk would follow a similar deal by the government of Indonesia, which launched a waqf-linked sukuk earlier this month.

Waqf have been around for centuries but they are widely seen as poorly managed, given they hold large portfolios of real estate and commercial businesses worth as much as $1 trillion globally, according to a Dubai government estimate.

Beyond waqf, other Islamic financial firms are seeking to use technology to channel money into smaller social projects.

Indonesian firm Blossom Finance plans a blockchain-based sukuk in coming months to fund microfinance projects in the Muslim-majority country, chief strategy officer Khalid Howladar said at the event.

The deal would be smaller than most other sukuk but using blockchain would help keep issuance costs low, while attracting a large pool of retail investors, said Howladar.

“Technology allows you to on-board customers in a far cheaper way than you could ever do before,” said Howladar, adding that the sukuk would use a profit-sharing structure and carry a profit rate of around 10 percent.

The firm plans other blockchain-based sukuk to fund an environmental waste disposal project and a hospital expansion. (Reporting by Bernardo Vizcaino; Editing by)