Stellar’s Sharia certification could boost crypto-friendly Bahrain's role as a regional financial hub. Photo: iStock

Stellar, an open-source platform for distributed payments, became something of an investor darling in recent weeks after an association with IBM that aims to produce a potentially game-changing USD-pegged ‘stable coin’. Now Stellar says its new crypto token has become Sharia compliant, possibly opening it up to the vast Islamic remittance market.

The Shariyah Review Bureau, licensed by the Central Bank of Bahrain, has decreed Stellar to be a “Sharia compliant application,” meaning it can be used in any Islamic financial institution. Stellar claims this effectively makes it the world’s first major crypto-currency to be Sharia compliant, although in April Bitcoin was declared to be “generally permissible” by a Sharia advisor and NOORCOIN also claims to be Sharia compliant.

The announcement by California-based Stellar is significant because the token’s stated purpose is for money remittances. The move could now open it up to regions where financial services require compliance with Islamic financing principles. This includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE and also Indonesia and Malaysia.

“This is a big advancement for the Stellar network given that these regions are endpoints of popular foreign worker remittance corridors,” Stellar said in a blogpost.

In June, South Korean lab IncuBlock also announced it had signed a Memorandum of Understanding with the Malaysian government for Sharia-permissible blockchain development.

The market size of assets held under Islamic finance is estimated at around $1.7 trillion, and a 2016 Deloitte Report estimated that Islamic finance covered 300 banks in at least 60 countries, and included more than 750 worldwide funds.

The report noted a “growing Muslim population standing at around 1.7 billion, out of which 50 million in Europe are looking at investment products catered to their needs… and a rise in sophistication through greater fundamentals in the contracts allowed under Sharia law and their appropriate utilization in the development of modern financial instruments.”

“The growth of index funds has been underpinned by the launch of several Islamic indexes by prominent providers over the past few years,” added the report. “The first was the Dow Jones Islamic Market Index, launched in 1999, followed by the FTSE Global Islamic Index Series the same year and in 2006 by the Standard & Poor’s Sharia indices.”

Stellar’s certification, covering blockchain and its native currency called a Lumens – the world’s 7th largest crypto-currency with a market capitalization of $4.3 billion – could now boost crypto-friendly Bahrain’s role as a key regional financial hub.

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