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IRTI partners with Blocko’s E24P to build a blockchain-based smart credit management platform


The research arm of the Islamic Development Bank Group (IsDB), Islamic Research and Training Institute (IRTI), has partnered with Samsung-backed blockchain technology firm, Blocko, to develop an innovative, blockchain-based smart credit management system. The credit enhancement system will minimise 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.

IRTI is collaborating with Blocko as part of the blockchain giant’s E24P initiative, a newly launched technology group focused on delivering cutting-edge blockchain solutions across the Middle East, Africa and Southeast Asia. The partnership demonstrates IsDB’s commitment to achieving its vision of enabling greater financial inclusion, alleviating poverty and accelerating the development of the Islamic finance industry.

Discussing the new partnership and the smart credit management system’s impact on the Islamic finance industry, Dr Sami Al Suwailem, Director General of IRTI, said: “The Islamic finance market is growing rapidly, with projections of a rise from around $2 trillion to an impressive $3.78 trillion by 2022, yet certain technical and economic challenges have prevented the industry from truly flourishing. Our new partnership with E24P aims to address this by providing the infrastructure needed for the Islamic financial industry to deliver critical financing to both the developed and developing world.”

Sharia law prohibits banks from charging borrowers Riba (interest) to penalise late payers and loan defaulters. Therefore, to encourage customers to meet their debt obligations to regular and personal loans availed on time, Islamic banks commonly charge debtors with late fees, which are then donated to charity. A challenge for the sector has been incentivising Islamic banks to collect and distribute these fees promptly, as the banks do not benefit from them directly. Similarly, borrowers see these late fees as an act of benevolence, thereby removing a sense of urgency to meet debt obligations on time.

Fintech, specifically blockchain, presents a solution to this challenge. The smart credit management system being developed by IRTI and jointly implemented by IRTI and E24P provides a novel incentive mechanism that encourages early repayment and contributes fees to an insurance pool that covers loan defaults. Such a system is not feasible through conventional arrangements but is facilitated through the use of high-performance blockchain technology.

The patented smart credit management system will utilise Aergo hybrid blockchain technology developed by Blocko to execute smart contracts. This technology will enable both Islamic banks and other financial institutions to perform credit assessments in an autonomous and integrated way while maintaining transparency, security and privacy for all parties. It will ensure credit assessments are performed in a provably transparent manner while keeping the data and methodology used appropriately secure and confidential, using zero-knowledge proofs.

Once the system is integrated, creditors will be in a position to reduce their credit default rate in order to improve overall business performance and accelerate efforts, such as financial inclusion and poverty reduction. The smart credit management system will also integrate previously siloed functions within financing processes, such as credit reporting, credit rating, credit history, credit insurance, and on-time payment incentives, to reduce costs and improve operational efficiencies.

Designed and built to be scalable across multiple institutions, the architecture allows multiple banks to collaborate on a consortium network to manage credit and insurance in a decentralised, autonomous and highly-governed ecosystem. This level of integration and scalability provides each party with its own copy of the database, building trust within the network and thereby encouraging more institutions to collaborate when assessing the credit worthiness of citizens throughout the Middle East.

Discussing the partnership and execution of the project, Phil Zamani, CEO of E24P, said: “We are honoured to be working with IRTI to help them deliver a truly unique solution that has the potential to have a significant impact on the world of Islamic finance. The implementation of blockchain systems in complex processes like credit and insurance has long been sought after by financial institutions around the world. Forward-thinking GCC countries, such as the UAE and Saudi Arabia, have been especially progressive, implementing blockchain projects to accelerate their digital transformation agendas and smart city innovation strategies.

“However, many blockchain projects fail to move past the initial proof of concept (POC) stage due to a lack of end-to-end systems design know-how, coupled with the practical implementation of blockchain technology in highly complex industrial environments. The E24P team has a proven track record, having already deployed over 38 large-scale private and government blockchain solutions, and this execution intelligence is needed to bypass costly, drawn-out POCs to fast-track to business value implementations.”

IsDB is a multilateral development bank operating in over 57 countries. Based in Abu Dhabi, E24P is a collective of technology experts, distributed financial services providers, state-level government sponsors, and leading research institutes in the UAE and the UK working with clients in high-growth economies and sectors across the Middle East, Africa and Southeast Asia.