A Shariah-compliant cryptocurrency that allows Muslims to pay for halal goods and services across borders would be desirable but for now it remains a hypothetical ambition as scholars and financial authorities grapple with it, according to experts canvassed by Salaam Gateway.
For a so-called “halal coin” to work, it must span both Shariah law and conventional and Islamic banking, says the head of the advisory perhaps most closely linked to the concept. Only once there is analogue banking buy-in could it enter the mainstream.
“The acceptability of a digital halal coin goes beyond Shariah,” Suhaida Mahpot, chief executive of Amanie Advisors in Kuala Lumpur, told Salaam Gateway.
“We need to engage the regulators, the central banks and the securities authorities to legally accept these coins. There has to be support from governments, from regulators and all the stakeholders related to it.”
Her boss, Amanie founder and chairman Mohd Daud Bakar, a leading Islamic finance intellectual who is also on the Shariah advisory council of Malaysia’s central bank and Securities Commission, has often advocated the idea. Indeed, he told Salaam Gateway earlier this year that a halal cryptocurrency would be the “best ever form of currency” from a Shariah perspective.
According to Suhaida, an 11-year veteran of Amanie and a specialist in sukuk financing, once all the institutional levers are in place, a halal coin will be feasible.
“[The idea] will become more mainstream in time, though there will still be some countries that will not accept [crypto]coins,” she added.
This is largely because there are differences of opinion concerning the Shariah acceptability of cryptocurrencies. While some scholars are very much inclined towards the idea of digital coins, other influential ones are dead set against the idea.
Egypt’s primary Islamic legislator, the Dar al-Ifta, went as far as to label all cryptocurrencies haram in 2017, soon after the country’s first bitcoin exchange was opened. Religious figures, including the Egyptian grand mufti, backed a fatwa against using the technology-generated coins over fears they could be used to fund terrorism.
Several other Islamic countries, including Saudi Arabia and Iran, have banned cryptocurrencies at an institutional level, preventing financial firms and banks from engaging with them and allowing authorities the time to learn how to deal with them at the regulatory level. Despite this, the Saudi Arabian Monetary Authority launched a cross-border cryptocurrency with the UAE’s central bank earlier this year.
“This is the challenge: perhaps [the scholars’] rejection is not a pure rejection, but there is perhaps a lack of awareness or lack of information given to them,” said Suhaida. “We need more engagement with scholars to help them understand further.”
She likened the debate to that over Malaysia’s Permodalan Nasional’s Amanah Saham Nasional stock trusts, which was resolved two years ago after the Selangor Fatwa Committee issued a ruling to declare the investment device permissible for Muslims. The same committee had earlier prohibited it, citing to the presence of riba transactions that had been interpreted in some circles as usury.
“Previously there were two schools of thought: one was that ASB was harus; another rejecting it as haram. But after years of explaining the idea and objectives of ASB, we had a collective opinion saying it was harus,” said Suhaida, referring to investment scheme Amanah Saham Bumiputera that falls under the bigger Amanah Saham Nasional umbrella.
“The same goes for digital currencies. We need to educate [institutions] more about how they can be accepted, and how the transparency from using cryptocurrency would benefit the wider society. Perhaps, this mindset will change over time.”
This is an opinion shared by Khairil Anuar Mohd Noor, principle of Masryef Management House, a Kuala Lumpur Shariah financial advisory, and previously head of product development at Al Hilal Bank.
“There are a lot of scammers in [cryptocurrency] so that would make Shariah scholars a little bit distant from it. But if you look at its underlying attributes, then in time it will become more mainstream,” Khairil said.
“To market a halal coin, it would need acceptability. Even if not all Islamic countries accept it, there will still be a sizeable market that do accept a halal coin if there is a marketplace for it. I think there will be.”
DIGITAL VS FIAT CURRENCY
Drawing parallels with fiat currency, Khairil speculated that a Shariah-compliant cryptocurrency “would be better” than the Kazakhstan tenge, which has had a volatile 12 months, with some analysts blaming it for bringing instability to the Kazakh financial markets.
“A halal coin, if it is introduced, could be more acceptable than soft currencies. But it’s about how the players market it and what kind of support the authorities give to the coin. It would probably need the support of the Islamic Development Bank,” Khairil said.
According to Yousuf Sultan, chief infrastructure officer and Shariah advisor at Ethis Ventures, a Singapore-based Islamic fintech start-up, a Shariah cryptocurrency would be no more than a halal and digital version of a fiat currency.
“It’s all about the contractual relationships and protection of rights… because Shariah wants to protect the rights, wants to make sure that there are no forbidden activities
“If it is adding some value to users, and it is accepted by official institutions, Shariah has no issue with that, as long as the rights are properly defined and protected,” Yusuf said, adding that it is still “beyond our capacity” to know if Islamic financial regulators would accept a halal coin as a national currency. This decision would depend on how cryptocurrencies develop and perform over time.
Elsewhere, though a universal halal cryptocurrency would be “desirable”, Amin Ashari Shafie, a director of Serunai Commerce believes its issuance would depend on whether its value could be fixed and all Islamic institutions agree on its worth.
“My concern has always been about the carrying value of a coin and whether this is secure. The carrying value has to be acceptable by multiple parties, and must be able to be retained from one country to another,” Amin said.
“If it were deemed acceptable [under Islam], and if that carrying value could be translated to fiat currency, then great; every country would accept its exchange rate. But at least up to this point there has never been a [cryptocurrency] exchange that was able to transfer that value from digital.”
But basing a coin on fully regulated Shariah-compliance would mitigate the risk faced by other, non-halal coins. Over the last five years or so, he said, more than 90 per cent of coin offerings have tanked because the projects they supported were not viable. By being rooted in Shariah contracts, and regulated by financial authorities, a halal cryptocurrency would have strict controls.
“Then the issue is no longer about the issuance of the coin, but what the money is supposed to be used for. That’s a different matter,” Amin said.