Blockchain technology – Game-changer for global Islamic economy

By Afifah Suhaimi,

Driven by the growing demands of halal products and services from the global Muslim population, this is the best time for Malaysia to step up their effort in promoting halal industry – as this can be one way to contribute to Malaysia’s gross exports, which is one of the key components of Malaysia’s GDP.

Although Malaysian economy contracted by 17.1% in the second quarter of this year (2Q20), Malaysia’s gross exports appeared to be picking up – exports registered at RM82.9 billion in June (8.8% year-on-year), an improvement compared to the May figure of RM62.7 billion (-25.5% y-o-y).

As the global Muslim population is predicted to increase from 1.8 billion to 2.2 billion by 2030, it seems that Islamic economy will dominate the world economy in the upcoming years, with different sub-sectors like halal food and beverages, ingredients, cosmetics and pharmaceuticals, modest fashion and many more.

Thus, as exports have started to pick up starting June, it would be the right time to actively promote halal products and services.

Apart from fulfilling the Muslim consumer’s demands, the Islamic economy is also seen to attract non-Muslim customers and players as well. Indeed, this economy is no longer viewed from its religious point but is also a concept that embraces quality assurance and lifestyle choices.

As stated in the Global Islamic Economy 2019/20 report produced by DinarStandard, Malaysia remains the leader in the GIEI (Global Islamic Economy Indicator) and continues to strengthen its ecosystem for Islamic economy businesses.

Amazingly, Malaysia has become a global leader in numerous segments within the Islamic Digital Economy, having been identified as the top Muslim travel destination in the world, the largest Sukuk issuer in the world, the possessor of one of the world’s best halal standards, and leader in global Islamic finance and banking.

Owing to these achievements, Malaysia needs to invest and focus more on the halal economy so that we can maintain our position while working towards becoming the next most significant halal industry hub or player in the world.

Nowadays, concerns regarding health and halal matters are rising, especially now, amidst the Covid-19 pandemic. For instance, halal consumers are continually making inquiries on the raw material used to produce a product, ingredients used to make foods or make sure that the broiler is slaughtered with a certified team.

Technically, the lack of authenticity and inaccuracy is a big issue that can affect the integrity of the Halal supply chain. Due to this, it is crucial to implement a system that can support the transparency of the products’ whole value chain so that the reliability in the supply chain data can be achieved as well as improved the consumers’ trust level in the supply chain processes.

In the wake of this, blockchain technology is the current perfect solution for this.

By using blockchain technology, the consolidation of the different mediators along the supply chain to work as a single component can be provided. This is vital to preserve the integrity of these halal products.

It works by recording the halal movement of the halal product associated with related information like origin, destination, location and electronic seal ID. This record will reveal any fraud or manipulation along the way, and ensure that warehouses, transportation containers, storage of the halal products are regulated according to the halal standards and distinguished from the non-halal products.

This indeed is very beneficial, especially to our halal food economy, which is once a niche market but now booming worldwide. In fact, blockchain offers traceability that can speed up the whole halal certification process which usually takes months or years to be verified.

Apart from providing transparency, blockchain technology can also reduce the time needed in solving specific issues, which will then minimise the brand damage of halal-certified products. This is important in showing to the world that we can also run this economy efficiently, which is as good as the other reputable economies across the globe.

Nonetheless, although blockchain technology is not new, some people are still unaware of the importance and benefits of this technology. Thus, the halal industry players need to be educated with this tech and what it has to offer to their business model.

Another way that can be done is by coming up with our own halal trading house. A halal trading house functions as an exporter, importer and trader that purchases and sells products for other businesses.

Thus, with a halal trading house, it will provide specialised services that focus on halal-certified goods. For a start, according to Roziatul Akmam Osman, a Halal expert and professional, the government could form a consortium of established and reputable trading houses operating in Malaysia that are already providing their services to the halal sectors of the various industries operating here.

Besides, together with their international and domestic networks, each of these existing trading houses can leverage their expertise to promote effective and productive multi-industry upstream-downstream supply chains which are also sustainable and affordable.

Most significantly, there should be constant control of the partnership, so that no monopoly will occur.

Going forward, with the relaxation of the Movement Control Order and reopening of all sectors of the economy, now is the best time than ever for us to focus more on the Islamic Economy. Not to mention with a touch of digital, the halal industry in Malaysia will thrive and propagate further for the benefits of all.

Afifah Suhaimi is Research Assistant at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.