An Islamic microfinance start-up has launched what is believed to be the world’s first smart sukuk issued on a blockchain platform, which it hopes can channel greater liquidity to small- and medium-sized enterprises (SMEs) and social impact projects by dramatically cutting the costs associated with issuing sukuk.

Blossom Finance’s idea took shape four years ago, but the start-up had to wait for technology to catch up with its plans.

“The genesis of the company goes back to October 2014, but it was only in 2016 when we could begin working on it. The tech just wasn’t there,” Blossom Finance founder and CEO Matthew Joseph Martin told Salaam Gateway.

Blossom Finance is registered in the United States but works primarily out of Indonesia.

“In theory we could do this stuff with the original bitcoin network but everyone we talked to laughed and said, ‘that’s an interesting idea, but I’ve no idea how to do that.’ We kinda hit a brick wall and just had to wait for the technology.”

By tapping into Ethereum, the blockchain-based distributed computing platform, last year Blossom was able to accelerate the development of its smart sukuk and opened its first issuance to investors in May this year.

Now, the vehicle allows investors to deposit fiat and cryptocurrency into its account from anywhere in the world, for which they will receive a verifiable digital contract to reflect their share of the investment, backed by the immutable nature of a blockchain ledger.

By cutting out the amounts charged by banks, lawyers and currency exchanges, and charging a flat fee for each investment, Blossom claims to be able to dramatically reduce costs.

“Because it’s microfinance, the numbers are quite small,” said Martin. “We’re not talking about borrowing tens of millions; the first issuance is probably targeting maybe $1 million tops, which is a very small number.

“Blockchain and the ability to move funds via cryptocurrency will lower costs. If someone from Dubai wants to help fund a microfinance initiative in Indonesia, and gives, say, $200, by the time it got there, it would have probably lost $80 in terms of transaction fees.”

Khalid Howladar, who advises Blossom on strategy and risk, believes it shouldn’t matter whether a sukuk certificate is issued on paper or blockchain, though the latter would require an investor to have confidence in the system.

“If you’re raising such small numbers in funding, you can’t bring to bear the entire infrastructure of investment banking. All the costs of the parties involved, whether it’s the scholars, the highly paid lawyers or the bankers, when it’s advertised as a $100 million transaction, you can afford that,” Howladar, the founder of Acreditus, a UAE-based credit and sukuk advisory, told Salaam Gateway.

“But if you’re only borrowing financing for small amounts, you can’t really afford to go through that process. So this is why microfinance institutions don’t have access to the most liquid pool of funds,” Howladar added.


Blossom has designed two sukuk mechanisms on the blockchain.

The first, a sukuk al mudarabah profit-sharing structure, is collecting funds to be invested into the issuer PBMT Social Ventures, a venture capital firm that funds microfinance co-operatives that in turn extend financing to micro-businesses such as farmers and home-based convenience stores. The profits from financed activities will be returned to the fund and distributed between investors.

PMBT is regulated by the Financial Services Authority (OJK), and has a Shariah review board overlooking the mudarabah agreement and the underlying organisations’ financing activities.

The fund is targeting a minimum subscription of $20,000 and maximum of $5 million on a 60 percent investor-40 percent issuer profit share. Blossom is projecting six percent net annualised return on the six-month sukuk.

Blossom takes a 20 percent share of the investors’ profit, or in conventional financial terms, the carried capital interest.

The sukuk falls under the United States’ Securities and Exchange Commission regulations regarding private placements. The U.S. SEC has no specific regulations for sukuk instruments.

Though it has been open since May, the first sukuk is not yet being actively marketed as Blossom tests the system for security and accuracy. According to Martin, the company is working with multiple third party auditors to perform security tests.

“Note that currently (and in the near future) Blossom will not directly receive, hold, nor store any crypto funds (or their associated private keys) so they are not exposed through any attacks directed at Blossom,” said Martin, addressing a key cybersecurity concern.

Martin claims to have had “quite wide international interest” in the sukuk.

“We’ve had an investor from Bangladesh, which typically people think of as a place that’s looking to raise charity, versus someone from there who has cryptocurrency who wants to invest it in Indonesia. I think it’s really interesting,” he said.

“We have investors from Central Europe, Southeast Asia, South Asia; not so much from the U.S.— which is surprising as we are a U.S. company—about 10 percent.”

Its second structure, an asset-based lease sukuk, or sukuk al istithmar al ijara, does not yet have any active funds available, though Martin says Blossom has the technology ready and is evaluating several potential issuers.

In this case, the sukuk would fund projects such as hospital construction: on completion, the hospital operator would lease its facilities from the sukuk’s investors at a profit.


Due to the global nature of financial technology (fintech), the regulations governing Blossom are complex.

Though it is based in Jakarta, its fund is set up in the United States and operates under American governance. Investors, in turn, must defer to the rules governing their home jurisdictions.

“Under U.S. regulations, our fund can accept either individuals or institutions provided that they meet certain minimums in terms of assets. For those who don’t fall into that category, meaning you’re not high net worth, we’re working on another fund that will be set up in Singapore,” said Martin.

As an Indonesian fintech business, Blossom must also adhere to local guidelines, many of which are currently being drawn up by banking authorities.

A new set of regulations is expected to be released by Indonesia’s Financial Services Authority (OJK) soon to cover peer-to-peer lending, insurance technology and equity crowdfunding.

Blockchain securities trading, which comes under the purview of Indonesia’s central bank, is still in the pipeline, though it currently falls under existing securities regulations.

The purchase and sale of cryptocurrency as an asset is allowed in Indonesia, albeit without a regulatory framework. “Basically, for investors, it’s ‘buyer beware’,” according to Martin. This means it’s fully legal to invest in cryptocurrency to buy as assets and to trade in, but using the likes of bitcoin to pay for domestic transactions is illegal under existing legal tender laws, as is gold, silver and even foreign currencies such as the U.S. dollar. This level of complexity will doubtless lead to many grey areas and crossover between regulators.

“We have to be compliant with both securities regulation and fintech regulation [when it comes] under the central bank, as well as capital markets under OJK. Cryptocurrency falls into all of these camps, so all of a sudden we have multiple regulators to keep happy. It’s not clear to me, and I don’t think it’s clear to the industry and the government either,” Martin said.


Martin sees an ideal solution to regulation in the form of a “sandbox”.

In the fintech universe, sandbox refers to a mechanism for developing regulation that keeps up with the fast pace of technology innovation. Its purpose is to adapt compliance with financial regulations, in a way that doesn’t smother the fintech sector with rules, but also avoids diminishing consumer protection.

This should appeal to Indonesian authorities as they continue to evolve their approach to fintech regulation, which lags behind countries like Switzerland that recently announced a fully regulated digital platform for investors, regulators and issuers to transact in cryptocurrency, and Singapore, which has clear guidelines.

With a declining rupiah, authorities in Jakarta are keen to bring in outside capital to stabilise the currency, Martin believes.

“Using cryptocurrency is a way that could make that really easy. Hopefully they will develop some kind of sandbox, or at least pragmatically a safe harbour approach,” he said.


As the first blockchain company to enter the global sukuk market, which was worth $97.9 billion in issuances last year, according to S&P Global Ratings, Blossom expects competition.

In July a joint venture between Dubai-based ArabianChain Technology and tech R&D firm Curiositas announced it was developing a platform for Islamic capital markets using smart contracts and legal automation to mainly target financial institutions and investment banks for the issuance of sukuk in the $1 million to $10 million range.

“We have currently designed and developed the core platform for the lifecycle of our first sukuk product, an ijara,” Mohammed Alsehli, founder and chief executive of ArabianChain Technology, told Salaam Gateway.

“What distinguishes us from our Islamic finance peers is our focus on capital markets, the creativity and innovation we bring to the design and development of traditional products using frontier technology and, as opposed to other recent initiatives, we are not offering retail sukuk products outside regulations, such as ‘crowdfunding’ structures targeting retail customers.”

Alsehli plans to demonstrate the platform to regulators across the Islamic world from September, and then integrate third-party software modules before its scheduled launch in May 2019.

While Blossom’s business model focuses on microfinance at the moment, and platforms like ArabianChain’s look to develop blockchain software for use by the banking industry, is there anything to stop blockchain sukuk from moving toward mammoth issuances? Howladar says this is unlikely.

“There are probably many people using smart contracts in some way, but I don’t think that the big-ticket deals market will move towards blockchain because they already have a very established ecosystem,” said Howladar.

“And let’s not forget that these are players who have an interest in moving slowly, or at all, into a new model until they can monetise it for themselves.”