Joining me today are two guests working at the intersection of Islamic finance and tokenisation. Welcome to the show. For Fawad — strip away the buzzwords. What does a tokenised product actually do better than a normal one?
So what it does is it brings much more transparency. From the investors’ point of view, they get to see where the ownership lies, the overall structure, the way it is being done, how they are generating the returns — and having that alignment built into it makes the whole process much easier for investors to go in. And then the transaction done by the end obligor — for them to have a very clear vision of how they will process the whole easement — the process completion becomes very smart, which essentially makes the whole origination and execution much better.
And Niranjan — what does a tokenised product do better than a normal one from your perspective?
If you look at products available to investors, you have typically what you hear of — a stock, a bond, an exchange traded fund. Those are traded on exchange and most everyone can buy or sell at the drop of a button. But the moment you go towards real world assets — a government bond or a corporate bond that trades in a minimum size of $100,000, a bank loan, lending to an SME, or lending against a commercial vessel — those real world assets are not readily available to the wider investor class because they are bulky and need to be structured in a manner compatible for wider access and liquidity. That is what tokenisation does. That is one part of the story. The other part is if you look at the Web3 ecosystem, it is dominated by stablecoins — basically the digital version of cash. How do you deploy that cash into real world assets? That is what tokenisation solves.
Fawad — tokenisation has been hyped for years. What has actually changed?
Previously the question was whether an asset can be tokenised at all — the technology itself was questioned. Now what has changed is people are asking the right fundamental questions: where do the rights stand, where is it registered, how is the yield being generated? The fundamental questions that were not asked before are being asked now. There is a clear vision that this is the way transactions will be dealt with in the future. The concept of tokenisation is talked about less — more focus is on what it derives and how yield is driven.
Niranjan — what has actually changed?
What is really changing is the structuring and the quality. Most assets commonly available on-chain today are crypto tokens or meme tokens — not quality real world assets. What we are doing with Fawad and Zamanat is structuring real world assets in a manner that a bank’s credit officer will sign up for, that an investment bank will underwrite, that a regulated investment fund will invest in — so that investors, retail or institutional, get access to well-structured quality products. That is the big difference.
Is Islamic finance a natural fit for tokenisation — and who decides what counts as Sharia compliant?
From an Islamic finance principles perspective, the very core areas are a real asset, a real transaction, and authenticity of ownership. All these elements get answered when you bring tokenisation into the structure. You have an asset that gets authenticated, its ownership is registered on blockchain, and how the whole situation is driven is recorded. Within the very first instance you ensure that the underlying structure is Sharia-aligned — everything that needs to be brought as part of the transaction is recorded properly and transparently shared with investors from both the obligor and investor point of view.
Thank you so much for joining us today.
Thank you for having us.