The current FTX crisis however, digital asset markets, cryptocurrencies, 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 North Africa (MENA) region central banks are driving the evolution of these technologies. Here they direct, regulate and exercise inordinate power in setting government policies. Central bankers often have long terms in office and nothing happens unless they approve.
Central banks also serve as the operating arms of government financial policy. They take the initiative to accelerate, regulate, restrict or shape any type of technological change that may affect the economy of the region.
There is another twist. Because these regions are primarily Muslim, Islamic finance guides these organizations. The MENA region consists of 28 countries with an estimated population of over 357 million. The region is developing rapidly. As one of the world's resource-rich regions, it is home to the world's largest Islamic banks, which serve Muslims and other communities around the world and base their decisions on Islamic financial beliefs.
Islamic finance is the only example of a financial system based directly on the ethical precepts of a major religion, providing not only investment guidelines but also a set of unique investment and financing products. Islamic finance is based on the Shari'ah, which provides guidelines for many aspects of Muslim life. (Shari'ah is an Arabic term often translated as "Islamic law.")
Shari'ah compliant financing includes a set of practices that accompany a legal guideline that complies with Islamic laws and beliefs, such as prohibiting interest and promoting ethical investments that follow the Qur'an. Shari'ah compliant finance has become an accepted and vibrant element in international transactions.
Indeed, Islamic finance calls for the adoption of impact-oriented economic activities and the allocation of resources to meet the material and social needs of all members of a community. According to Islamic law, money is a measuring tool of value and not an asset in itself. No one should be able to receive income from money alone, so profit from interest or speculation is considered usurious and exploitative and therefore prohibited or โharamโ.
For this reason, some central banks and government leaders initially viewed cryptocurrencies with skepticism, and even today there is a mixed approach to these new technologies in the region.
However, leaders across the region have recognized that Web3/blockchain applications are a vital alternative financing method, directing funds to impact-oriented social and economic activities that satisfy the core fundamentals of Islamic finance.
Countering the global crypto bear market, from July 2021 to July 2022, the Middle East was fastest growing crypto market, indicating that both individuals and organizations are embracing the technological capabilities of blockchain and the incentives it supports. While crypto transactions increased by more than 20% worldwide, MENA saw a gain of more than 45%, led by turkey.
Fueling this interest and adoption are quality Web3 research and educational resources, conferences, and media attention. Central banks feel the pressure to develop coherent policies that embrace innovation. Ultimately, unlike other nations, crypto ban it is not possible. If all assets go digital, such steps could ban all digital assets and consequently the next stage in the evolution of the digital economy.
Progress in individual countries has been uneven, but to a large extent there has been progress. Here's a closer look at some key nations:
United Arab Emirates
The United Arab Emirates (UAE) leads the region and Dubai leads in its own right with roughly a third of all government applications running on blockchain. He has also backed interesting policy innovations, such as the creation of metaverse policemen to monitor illegal behavior in virtual worlds that are increasingly being built on Web3.
The Central Bank of the United Arab Emirates completed a CBDC Pilot Program for Cross-Border Multi-Currency Payments with the Hong Kong Monetary Authority, the Bank of Thailand and the People's Institute of Digital Currency bank of china.
The Dubai Financial Services Authority has also issued regulations on crypto tokens for clients who want to use this new asset class. The announcement was made to expand the range of available virtual asset regimes, building on investment token regulations announced in October 2021.
The UAE central bank also announced the completion of the first CBDC pilot in September. Today he is working on an e-KYC, innovation center, and wholesale and retail CBDCs to stay at the forefront of blockchain adoption.
Saudi Arabia
The kingdom is embracing Web3 in many ways. 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. In September, SAMA hired a new head of crypto to lead its CBDC and virtual asset program.
The Saudis have also been working on real estate tokenization, as well as blockchain implementation in the healthcare and supply chain sector. Most recently, the Saudi British Bank (SABB) used blockchain to improve the digitization of letters of credit.
bahrain
The Central Bank of Bahrain (CBB) issued final regulations in February in response to growing demand for crypto assets, which included licensing a blockchain-based crypto exchange called Rain that allows users to buy, sell and store cryptocurrencies. It has more than 180,000 users and there have been more than 1.9 billion dollars in transactions.
Binance and CoinMENA have also received crypto asset service provider licenses. Bahrain has even created the region's first onshore regulatory sandbox and is focusing on blockchain applications that strengthen its supply chains.
Oman
Oman has been among the MENA blockchain leaders. A few years ago, the government worked on a massive skills upgrading project by scheduling courses and seminars to raise awareness of the importance of technology. The Central Bank of Oman has hired experts to study the advantages and disadvantages of authorizing the use of cryptocurrencies in its economy.
More recently, a prominent Energy Al Shawamikh Oil Services, partnered with Frontech to develop a sustainable energy management system Built on blockchain technology. It will track and manage sustainable energy production units on the blockchain.
Qatar
For years, the Qatar Central Bank (QBC) had banned the mining and investment of Bitcoin and other cryptocurrencies. Recently, interest in blockchain technology has increased in the country, so QBC is changing its approach. It has shown great interest in establishing 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 presented next year.
Blockchain adoption is nascent in Qatar, leaving software development companies room for innovation. Qatar University spin-off Genesis Technologies has formed a local blockchain development team to start evaluating relevant use cases. Equally exciting, the organizers of the FIFA World Cup selected blockchain startups, Algorand for its green credentials and Crypto.com for its user-friendly systems, as sponsors of the tournament that just concluded on Sunday.
Aline Daoud is a civil engineer and managing partner at the Blockchain Research Institute Middle East. The Toronto-based BRI has completed 150 projects on Web3 use cases, opportunities and challenges. The BRI Middle East runs educational and pilot programs in the United Arab Emirates, Saudi Arabia, Qatar, Turkey and Egypt. Opinions expressed in Fortune.com comments are solely the views of their authors and do not reflect the opinions or beliefs of Fortune.
