Smart Sukuk dan Perannya dalam mendukung pengembangan UMKM

1. Sukuk Development

One of the most important instruments in Islamic finance is the Sukuk. They are typically used to raise capital for organizations and businesses, as well as finance projects. The issuance of this instrument has been rising over the past few years. The global Sukuk issuance has shown a single-digit increase of around 7.72% p.a. or USD 174.641 billion in 2020 to USD 188.121 billion in 2021. Such growth in 2021 was mostly driven by sovereign Sukuk issuances from Asia, GCC, Africa, and certain other jurisdictions; while Malaysia continued to dominate the Sukuk market though the share of countries like Indonesia, UAE, Saudi Arabia and few others increased with good volume.

Figure 1. Total Global Sukuk Issuance.
Source: (IIFM, 2022)

According to data from the Ministry of Finance of the Republic of Indonesia, the Indonesian government has issued sukuk as of July 2020 was IDR 1,041 trillion. In June 2020, the issuance was dominated by sovereign sukuk and amounted to Rp. 868.43 trillion, compared to non-sovereign sukuk (e.g. corporate sukuk and others) of Rp. 29.4 trillion (approximately 2.02 percent of total Islamic financial assets)2.

Due to the rapid development and diffusion of new technology, currently the financial sector is undergoing a significant transformation. Such intersection of 'finance' and 'technology' is sometimes referred to as 'Fintech,' typically referring to companies or ideas that use new technologies to improve or reinvent financial services. Fintech innovations are observed in many facets of the financial industry, including payments and financial infrastructures, consumer and SME financing, insurance, investment management, and venture capital. The development of fintech also gave rise to blockchain technology which is also the technology used in cryptocurrencies. A 'blockchain' is a specific sort of data structure used in certain distributed ledgers that stores and transmits data in packages called 'blocks' that are linked together in a digital 'chain', Blockchains employ cryptographic and algorithmic techniques to immutably record and synchronize data across a network3. For instance, a new digital currency transaction would be recorded and communicated to a network in a data block, which is first validated by network members and then append-only added to an existing chain of blocks to create a blockchain. As the linear chain expands as new blocks are added, prior blocks cannot be altered retrospectively by any network participant. One of significant innovations in the blockchain technology being used by many financial institutions is the smart contract.

2. Smart contract

Smart contracts are basically blockchain-based programs executed when certain criteria are met. Typically, they are used to automate the execution of an agreement so that all parties can know the outcome immediately, without the need for an intermediary or any time loss. In addition, they can automate a workflow by initiating the next operation when certain circumstances are met. Smart Contract has several benefits compared to traditional contracts.

  • Speed, efficiency and accuracy
    Once the condition is met, the contract is immediately executed. Due to the digital and automated nature of smart contracts, there is no paperwork to handle and no time spent correcting errors that frequently occur from manually filling out documentation.
  • Trust and transparency
    Since there is no third party engaged and all participants share encrypted records of transactions, there is no need to question if information has been manipulated for personal gain.
  • Security 
    Since blockchain transaction records are encrypted, they are extremely difficult to hack. Moreover, because each record on a distributed ledger is linked to the preceding and subsequent entries, hackers would need to alter the entire chain to change a single record.
  • Efficient 
    Smart contracts eliminate the need for middlemen and, by extension, its associated time delays and expenses.

3. Smart sukuk

The smart contract can be used for Islamic financial institutions to issue sukuk whereby prerequisite for the faster growth of sukuk is the standardization of Sharia interpretation and legal documentation. This would fuel growth by streamlining the sukuk issuance process, which is still more complex and time-consuming5. Smart contracts can be a strategy to handle those challenges and boost the sukuk industry.  It would eliminate the need for intermediaries and simplify documentation and compliance checks through smart contract integration, reducing cost and time. Blockchain will also build strong trust relations between issuers and investors as it enhances transparency and eliminates any chance of fraud or speculation in sukuk transactions. Smart Sukuk eliminates several elements and parties in conventional sukuk such as trustee, registrar, paying agent, calculation agent, arranger, listing agent, transfer agent, security depository. The existing smart sukuk runs on the Ethereum blockchain, which supports smart contracts. In this system, smart contracts in sukuk encode business rules directly into the underlying payment currency itself (Figure 2). The blockchain enforces the contract rules regarding payments and transfer of ownership4. This innovation is estimated to reduce costs by 50-70%. The platforms allow for instantaneous clearing and transaction settlement means that sukuk trades could take 30 second instead of five days. 

Figure 2. Smart Sukuk Mechanism
Source: Author, adapted from Blossom Finance


With the advantages of smart sukuk, several institutions in the world have issued smart sukuk. Blossom finance is an institution that became a pioneer in issuing smart sukuk and was followed by The Wethaq Platform.

Blossom Finance

In the midst of the development of the sukuk market, in October 2019, Indonesia was listed as the first country to issue (financial technology) fintech sukuk—which can be compared to a blockchain micro bond in practice—named Smart Sukuk (hereinafter referred to as Smart Sukuk) in the amount of Rp. 715 million by Blossom Finance and Baitul Maal wat Tamwil (BMT or sharia cooperative) Bina Ummah, in Yogyakarta (BMT Bina Ummah, 2020) with a mudharabah or profit-loss sharing scheme.

Blossom Finance Fintech has replaced the conventional sukuk trading with blockchain essentially. So all the calculating, paying and transferability of the sukuk trading, including primary placement and secondary market trading will happen via the blockchain system. Users who are comfortable using cryptocurrency directly can fund their investments using Ethereum as well, provided they meet the investing criteria. Sukuk issued on Blossom’s platform runs on the ethereum blockchain, a public blockchain that supports smart contracts. 

The Wethaq Platform

In 2018, Arabian Chain Technology, a Middle Eastern innovator in the blockchain industry, signed a joint venture with Dubai to create Wethaq Capital, a fintech start-up and the first world platform for the Islamic capital market using smart contracts. Wethaq is part of the R3-Corda consortium, an open source distributed ledger platform made by 40+ of the largest global banks, designed to work within finance to operate complex transactions and restrict access transaction data. 

In 2018, Wethaq launched a proof of concept exploring the possibility to apply new blockchain technologies to the Sukuk market. Wethaq developed a new Smart Ijarah Sukuk, using DLT and Smart Contracts’ smart clauses. The platform, regulated by the Dubai Financial Service Authority, is a permissioned distributed ledger that guarantees the operations’ security and transparency. Recently, ISDA (Internal Swap and Derivatives Association) defined platforms as Wethaq, a ‘light-ledger’ as a DLT system where payment managing, and settlement, take place off-chain using existing and alternative payment systems. Wethaq, as part of R3, can benefit from the openness and capability of the Corda environment, the private permissioned blockchain platform7. Thus, these platforms do not disrupt traditional financial intermediation but ancillary to cover their inefficiency, ensuring interoperability with other trading and settlement platforms. Wethaq aims to automatise the functions of register, trustee-delegate, paying, calculation and transfer agent, certificates issuances, allocation, management, and registration. This automation is provided by setting up special smart clauses constituting the Smart Sukuk digitalised documentation, contributing to cutting time-consuming, complex, and high cost generated.

4. Significance to support MSMEs

Small Medium Enterprises have significant contributions to both the global and national economy. SMEs make up the bulk of enterprises worldwide and are significant contributors to job creation and economic growth on a global scale. They account for around 90% of businesses and over 50% of employment worldwide. Formal SME contributions to national income (GDP) in emerging economies can reach up to 40%. When informal SMEs are included, these figures are substantially greater. According to World Bank (2019), 600 million jobs will be required by 2030 to absorb the expanding global labor force, making the development of small and medium-sized enterprises (SMEs) a top priority for many governments around the world. In emerging markets, 7 out of 10 formal jobs are generated by small and medium-sized enterprises (SMEs)8. In Indonesia, the number of MSMEs has a share of 99.99%, consisting of micro enterprises 98.67%, small enterprises 1.22% and medium enterprises 0.10%9. However, access to capital is a significant barrier to SME growth; it is the second most frequently stated difficulty for SME expansion in emerging markets and developing nations. One of the Islamic financial instruments to support SMEs financing is sukuk. However, the issuance of sukuk is currently quite expensive.

Most sukuk issuances are of sizes in hundreds of millions or billions USD, and typical servicing costs can exceed US$1 Million USD per year. Through Smart Sukuk, Blossom Finance claims it will eliminate many of these costly intermediaries and simplify the sukuk issuing and investing process, which will help enable smaller institutions to raise sukuk.  The impact of blockchain-based Sukuk might be enormous and is likely to affect the efficiency of the issuance process (such as time to market) as well as increase the number of issuers and investors. In contrast to the conventional bond and Sukuk markets, issuers of Smart Sukuk can raise as little as USD 20,000 in notes. Due to the digitisation of the Sukuk offering procedure, structuring fees may be removed10. In other words, entry hurdles to the Sukuk market could be greatly reduced. The procedure is also more efficient in its execution. With a relatively low cost, the issuance of smart sukuk will have the potential to be utilized for the development of SMEs as has been done by Blossom Finance. Issuance of financing through smart sukuk will greatly contribute to increasing the business scale of MSMEs.