The current FTX crisis notwithstanding, digital asset markets, crypto, Web3, DeFi, central bank digital currencies (CBDCs), and stablecoins are shaking up decades-old financial protocols. Unlike most other parts of the world, in the Middle East and Northern African (MENA) region central banks are driving the evolution of these technologies.
There is another twist. Because these regions are primarily Muslim, Islamic finance guides these organizations. Islamic finance is the only example of a financial system directly based on the ethical precepts of a major religion, providing not only investment guidelines but also a set of unique investment and financing products.
Shari’ah-compliant financing includes a set of practices accompanying a legal guideline that abides by Islamic laws and beliefs, such as banning interest and promoting ethical investments that follow the Qur’an. Shari’ah-compliant finance has become an accepted and vibrant element in international transactions.
For this reason, some central banks and government leaders initially viewed crypto skeptically, and even today in the region there is an uneven approach to these new technologies.
However, leaders across the region have acknowledged Web3/blockchain applications to be a vital alternative financing method, directing funds to impact-oriented social and economic activities that satisfy the main foundations of Islamic finance.
Bucking the global crypto bear market, from July 2021 to July 2022, the Middle East was the fastest-growing crypto market, indicating that individuals and organizations alike are embracing the technological capabilities of blockchain and the incentives it supports. While crypto transactions increased by more than 20% around the world, MENA saw a gain of more than 45%.
Progress in individual countries has been uneven, but largely there has been progress. Here’s a closer look at a few key nations:
The United Arab Emirates (UAE) leads the region, and Dubai leads in its own right with about one-third of all government applications running on blockchain. It has also supported interesting policy innovations such as the creation of metaverse police to monitor illegal behavior in the virtual worlds increasingly built on Web3.
The Central Bank of the UAE finished a CBDC pilot for multi-currency cross-border payments with the Hong Kong Monetary Authority, the Bank of Thailand, and the Digital Currency Institute of the People’s Bank of China.
Today it is working on an e-KYC, an innovation hub, and wholesale and retail CBDCs to remain at the forefront of blockchain adoption.
The Dubai Financial Services Authority has also issued regulations on crypto tokens for clients wishing to use this new asset class.
The kingdom is adopting Web3 in many forms. For example, Saudi Arabia just celebrated its National Day in the metaverse for the first time. The Saudi Central Bank (SAMA) and the Central Bank of the United Arab Emirates collaborated on a pilot CBDC.
The Saudis also have been working on tokenizing real estate as well as implementing blockchain in the health care sector and supply chain. Most recently, the Saudi British Bank (SABB) utilized blockchain to enhance digitization of letters of credit.
Oman has been among MENA’s blockchain leaders. A few years back, the government worked on a massive upskilling project by scheduling courses and seminars to raise awareness of the technology’s importance. The Central Bank of Oman has engaged experts to study the advantages and disadvantages of authorizing the use of cryptocurrencies in its economy.
Most recently, a prominent energy company, Al Shawamikh Oil Services, has partnered with Frontech to develop a sustainable energy-management system built on blockchain technology. It will track and manage the sustainable energy production units on the blockchain.
For years, the Qatar Central Bank (QBC) had banned the mining and investment of Bitcoin and other cryptocurrencies. Recently, interest in blockchain technology has surged in the country, and so the QBC is changing its approach. It has shown strong interest in setting up a legal framework for the use of digital assets and blockchain applications and is exploring tokenized solutions for real estate. Under the auspices of the Qatar Financial Center, the country is establishing a board of experts to be introduced next year.
Blockchain adoption is nascent in Qatar, leaving software development companies with room for innovation.