Islamic scholars in Bahrain have certified Stellar’s blockchain platform and cryptocurrency (Lumens -XLM) – a move that will help Stellar and potentially other cryptocurrencies attract higher adoption in the Middle East.
Shariyah Review Bureau (SRB), the Sharia advisory agency licenced by Bahrain’s Central Bank, certified Stellar to use its technology in financial products that are compliant with sharia law.
The agency has “reviewed the properties and applications of Stellar and has promulgated guidance and guidelines that enable Sharia compliant applications of Stellar technology in Islamic financial institutions,” according to Stellar’s blog.
This marks the first time a distributed ledger protocol has received Sharia finance certification for money transfer and asset tokenization.
What is Sharia Finance?
Sharia finance is part of Sharia law, moral guidelines that cover all aspects of Muslim life and apply only to Muslims (the same way Catholic Canon laws apply only to Catholics). The guidelines were developed from the teachings of the Prophet Mohammed and came about during the period of Islamic expansion following Mohammed’s death.
Sharia law dictates what financial institutions can and can’t do. Since their position on money is that it has no intrinsic value it doesn’t allow profit to be made from its exchange, which means to be Sharia compliant banks cannot charge interest.
Sharia-compliant financial institutions turn to other methods of financing like joint ventures where they take equity in a company in exchange for money or through leasing agreements where the bank will buy the item the customer wants then lease it back to them.
What Does this Sharia Certification Mean for Stellar?
Stellar is a non-profit open source blockchain platform that enables financial transactions such as remittances (read our intro to Stellar to learn more).
This certification will enable Stellar to grow wherever financial services require compliance with Islamic financing principles. This list of countries, mainly in the Middle East and parts of Southeast Asia, includes:
- Saudi Arabia
Since the Middle East and Southeast Asia are popular places for foreigners to work, and thus popular places for remittances to outside countries, these are key countries for Stellar to do business since a big target market for them is remittances.
Governments of Middle Eastern countries have mostly been cold to crypto with some notable exceptions like Saudi Arabian Monetary Authority (SAMA) enabling Ripple’s cross-border payments technology to integrate with Saudi Arabian banks, but this certification marks a shift in attitude towards cryptocurrency in the region.