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City Bank recently partnered with the International Islamic Trade Finance Corporation (ITFC) to execute the first blockchain LC transactions compliant with Shariah laws.
First Shariah compliant transaction
The Jeddah-based ITFC partnered with City Bank Bangladesh to execute the first Shariah-compliant cross-border blockchain transaction in the world. The transaction involved a Letter of Credit (LC) which was finance by the Murabaha Trade Finance line from ITFC.
The LC was issued on behalf of Debonair Group, a Bangladeshi exporter that works on text-related accessories from Apparel Link, a Hong Kong-based trading company. The blockchain was executed on the R3 Corda blockchain technology network called Contour.
Sheikh Mohammad Maroof, the head of Wholesale Banking, Trade Services and SME-Small and Micro Finance at City Bank said,
“City Bank is the leading digital bank in Bangladesh and is committed to using technology to provide an efficient and satisfying experience to our clients. This transaction will pave the way for improved digital trade through blockchain technology.”
Cross-border trade via blockchain
The use of blockchain tech in cross-border transactions has increased rapidly. In December 2020, Contour and HSBC partnered to work on the digitization of international trade. A number of financial organizations across the world are now collaborating with different technology providers in the blockchain sector to test the efficiency of the technology and its use in international trade.
Contour CEO Carl Wegner said that the trade finance industry is finally embracing digitization and is set to reap the benefits of improving connectivity and efficiency of the LC transactions. He said that they want to ensure that the growing banking ecosystem, complete with technology providers and banks remains accessible and inclusive of everyone. Wegner also noted that completing the first Shariah compliant transaction is an important milestone for them.
Previously, the trade authorities of Singapore and Australia also announced that they aim to simply their cross-border trade.