A CASE STUDY OF IBF NET
The trajectory of the mainstream Islamic financial services sector, as we understand it, has never been smoother. The maiden experiments in Islamic banking and finance perhaps started with the birth of institutions like the Dubai Islamic Bank and the Islamic Development Bank in the mid-1970s.
A new breed of scholars, known as Islamic economists, dominated all discourse related to this emerging discipline called Islamic finance. Conventional finance was rightly condemned as unethical and unacceptable due to the presence of riba, gharar, maysir, ghubn and other such elements.
Scholars would spend endless hours subjecting every financial product and service in the banking and insurance sectors to the tests of Shari’a norms and identifying the Islamic alternative.
In terms of the models of banking and insurance, there were early breakthroughs in the form of two-tier mudaraba and (non-profit) mutual cooperation as the basis of Islamisation. Several studies proved and celebrated the superiority (in terms of efficiency and robustness) of these ethical models over their conventional counterparts. Soon after, the development of financial products and services followed and a new breed of professionals was fast appearing on the scene. Many of them had spent years in conventional banking, insurance and capital markets, and were apparently eager to move over. Also, the infant Islamic financial services industry needed professionals who knew what finance was all about. It was a perfect match. Everyone hoped that the marriage would be successful.
During these exciting times, IBF Net (The Islamic Business and Finance Network) was born as the maiden online community in the year 1997 for the exchange of views among students, researchers and professionals interested in this sunrise discipline and sector. It soon metamorphosed into a think-tank and became the pioneer provider of e-learning courses in Islamic banking, insurance and investments, and was given “the Global Excellence in Islamic Finance” award at the prestigious International Islamic Finance Forum (IIFF) held in 2007.
IBF Net later expanded the range of e-learning programmes, setting up a research lab for the development of tech-based solutions for the IsBF sector. More recently, IBF Net has continued to transform itself, involving merging several informal online communities into a membership-based virtual network of individuals and institutions with verifiable identities.
The transformed Network includes and replaces all existing online communities under the umbrella of IBF Net created on social media from time to time. Gaining membership in the new Network demands minimal data – name, email and mobile contact with a two-stage authentication process.
With IBF tokens as the mechanism for facilitation and incentivisation, the Network is introducing various platforms for e-learning and capacity building, Islamic social finance and volunteering (sadaqa of assets and efforts), ecommerce in halal goods and services along with Islamic commercial finance in a phased manner.
These will preclude transactions (such as remittances, loans and investments) that require prior legal and regulatory compliance and that would be introduced only after such approvals and licenses are obtained. Member types include:
- Donor – Beneficiary
- Volunteer – Beneficiary
- Seller – Buyer of goods/services
- Sender – Receiver of money
- Lender – Borrower of money
- Guarantor – Beneficiary of loan
- Investor – Investee of money
Transaction types1 include:
- Gifts with a one-way flow of Value
- Donations with a one-way flow of Value (with/without milestones and monitoring)
- Volunteering with a one-way flow of Value (non-monetary) with the option of a monetary counter value
- Exchange with a two-way flow of Value (spot settlement; applies to commodities trade)
- Exchange with a two-way flow of Value (spot settlement; applies to currencies remittance)
- Loan with a two-way flow of Value (deferred repayment; with or without maturity; with without collateral; with or without guarantee)
- Financing involving a two-way flow of Value (spot delivery; deferred payment & vice versa); examples include instalments sale, leasing, sale against advance
- Financing with a two-way flow of Value (deferred payment and delivery)
- Investments with a two-way flow of Value (Value in future is uncertain and determined by the terms of the contract)
In line with the trichotomy of an Islamic economy into philanthropy, not-for-profit and for-profit sectors, the following platforms are currently part of the Network, providing transactions in three sectors.
Several more platforms and use cases will be added in near future to the Network as an experimental miniature Islamic economy. The primary factor influencing the pace of the introduction of new platforms and use cases is regulatory approval and compliance. The miniature Islamic economy, once in place, would facilitate replication of its models, tools and instruments elsewhere. It would also serve as a laboratory for testing ideas in decentralisation, risk management, governance and various other policy issues.
This platform seeks to mainstream and institutionalise charitable and benevolent action (Sadaqa) – contribution of Efforts (SE) and Assets (SA) – through its objective measurement and conversion into tokens of value or social cryptos.
IBFS (IBF Esteem) tokens are issued to contributors of cash donations or sadaqa (or zakat or waqf) assets to approved projects listed on the platform as well as to a redemption pool – the IBF Waqf Pool.
Contributors of efforts or volunteers have the option of choosing between IBFS (IBF Esteem) or IBFx (IBF Exchange) to be allocated by the Network based on the Fiat Equivalent Value (FEV) of their respective contributions.
The tokens issued to volunteers opting for IBFx are of restricted nature, exchangeable to fiat money at a rate determined by the size of the IBF Waqf Pool created for this purpose through charity inflows and may be subject to a lock-in period. An integrated platform for SA and SE is believed to enhance the efficiency and effectiveness of the twin processes of mobilisation and allocation of scarce sadaqa or philanthropy-driven resources.
Given that zakat and awqaf organisations are as much dependent on the mobilisation of funds as on the contribution of volunteers, the Benevolence platform is particularly useful and relevant for such Islamic entities.
This platform facilitates objective measurement of impact from the standpoint of both the sustainable development goals (SDGs) and the goals (maqasid) of Shari’a (MaS), conversion of realised impact into social cryptos and exchange of such social cryptos. The conversion of the impact of a given project measured against specific metrics, for example, carbon savings/ ambulance miles/ kilowatt-hours etc. into social cryptos is achieved based on verified data.
Projects can earn/liquidate their cryptos at the Platform to alter their impact score and risk- return-impact profile. Essentially, it is a B2B solution enabling projects to maintain a transparent and balanced risk-return-impact profile.
Given that Islamic awqaf organisations have been among the leading impact-creators, whether measured in terms of MaS or SDGs, the Confluence platform is particularly useful for such entities, who now have an ongoing and sustainable mechanism of creating impact and then leveraging the realised impact to create further impact via social cryptos.
This platform provides all the benefits that are usually bracketed with Blockchain technology in general as a trust-inducing machine. It enables the preservation of tangible and intangible assets by creating transparent, verifiable, traceable and immutable digital records of ownership in the form of NFTs while providing for automatic implementation of contractual relationships using smart contracts.
A platform like Credence is an integral part of the Islamic digital ecosystem since it addresses some basic pain points related to trust deficit. It enables the creation of a smart system by curbing the actions of bad actors in a multitude of use cases. Students can preserve their certificates and records of achievement on Blockchain in the form of tamper-proof NFTs that can be accessed at all times by any external employer or interested entity.
From an organisation’s point of view, Credence can create and store verifiable records of performance or acquisition of skills and competencies by its employees.
Credence can particularly help the waqf sector across the globe, which is facing the challenge of encroachment and loss of endowed assets by various bad actors. Waqf boards can now document, manage, and bring transparency in these dealings with regard to their assets, by having them preserved on the Blockchain.
This platform is essentially an extension of Credence that will provide a marketplace for NFTs, where sellers can offer their NFTs, either at a known price or via an auction mechanism. The platform will also provide a unique interest-free borrowing-lending (qard) facility through which buyers can seek financing for new purchases by offering their existing holdings as collateral.
Creators of all hues — authors, artists, musicians, calligraphers, inventors and others can time-stamp and preserve their creations on the Blockchain. All forms of intellectual property rights can be transformed into NFTs, while smart contracts would automatically transfer royalties to the original creators every time the asset is sold to a new buyer.
For obvious reasons, this platform can benefit the awqaf sector that may now look forward to the automatic and sustainable flow of benefits and cashflows from endowed assets.
This platform is under development and will focus on not-for-profit modes of Islamic finance, such as interest-free or benevolent loans (qard). Targeted as a tool of Islamic microfinance to alleviate poverty among the ultra-poor, the platform can use either of the four models for managing the risk of default (i) no guarantee (ii) 100 percent loan amount covered by personal guarantee (iii) 100 percent loan amount covered by physical guarantee and (iv) combination of personal and/or physical guarantees.
Since collateral-based micro-loans are quite common in South East Asia, the same may be linked to the NFT marketplace that can facilitate the tokenisation of physical assets, their valuation and liquidation to support the provision of collateral-based financial services.
This is a platform for e-learning and specialised certification courses in the field of zakat and awqaf management, Islamic microfinance, Islamic business and financial technology, and basic foundational courses in Islamic financial services. The platform offers the world’s only accredited (by FAA Malaysia) online certification course in zakat management.
This is the rejuvenated version of the original IBF Network created to facilitate the exchange of views and availability of scholarly resources in the field of Islamic business and finance.
Still under development, Essence is a marketplace that seeks to bring together buyers and sellers of halal goods and services including for-profit halal financial services.
Given the origins of IBF Net as a think tank, and a provider of learning resources, as well as a developer of technology-based solutions for the IsBF sector, the initial products at the marketplace cater to the student and researcher community in the field of Islamic business, finance and technology.
The range of products and services is expected to increase over time beyond education and technology, to include major subsectors of the halal economy, such as food, apparel, travel and tourism, pharma etc.
The use of IBFX as the medium of exchange will provide additional value to members of the Network primarily through (i) members-only discounts available on various products and services within the network and (ii) savings in costs related to conversion and remittance of fiat currencies. It will also facilitate Shari’a-compliant buy-now-pay-later or bai-bithaman-ajil transactions. More platforms and use cases will be added to the Network in the future to bring it closer to the idea of a miniature Islamic economy.
IBFX (IBF-Exchange) and IBFS (IBF-Esteem) are designed as cryptos/ tokens, to be used among the members of the Network. The IBF tokens will vary with respect to the rights and obligations of the members and the Network and are expected to perform multiple roles. While IBFX tokens are meant to perform the roles of (i) medium of intra-network exchange, (ii) unit of account and (ii) store of value, the IBFS tokens are meant to be collectables with “esteem” value.
IBFX Type I: These are fungible tokens; (i) freely transferable among members; (ii) used for payments for transactions within the Network, and (iii) exchangeable to fiat money at all times at the rates set by the Network every week reflecting the underlying demand-supply balance.
The Network will maintain a near-zero spread between its buy-sell rates, thus ensuring the ethics and efficiency of this mechanism. These can be purchased by any member at all times in any quantity.
IBFX Type II: These are fungible tokens; (i) freely transferable among members, and (ii) used for payments for transactions within the Network without the conversion-to-fiat feature. These are issued by the Network as an incentive to newly joining members, and to members for rendering various services towards strengthening the Network.
IBFX Type III: These are fungible tokens; (i) freely transferable among members, and (ii) are exchangeable to fiat money at rates determined by the size of IBF Waqf Pool for Redemption and may be subject to varying lock-in periods. These are issued by the Network to volunteers (at their choice).
IBFX Type IV: These are fungible tokens; (i) freely transferable among members, and (ii) neither can be used for payments for transactions within the Network; nor are exchangeable to fiat money.
Note, however, that IBFX Types II, III and IV are all exchangeable with IBFX Type I, thus indirectly to fiat money. The three exchange rates II:I; III:I and IV:I are determined freely by the community of members through an interplay of demand and supply within the Network.
IBFS Type I: These are fungible tokens with “esteem value” but without the three features (transferability, payment medium, exchangeability). These are issued by the Network as an incentive to all benevolent contributors to the mission of the Network. These include cash donors, volunteers (opting against receiving Type III tokens), not-for-profit lenders and guarantors.
IBFS Type II: These are non-fungible tokens (NFTs) with “esteem value”, that are transferable and exchangeable to fiat money through NFT Exchange only. These are created from time to time to incentivise benevolent and social action making a significant contribution to society.
The value of IBFX like any other token is made up of its intrinsic, real or fundamental value and speculative value. The speculative value is what the token gains from speculative traders who expect its price to fluctuate in the near future. In the conventional crypto space, the speculative value is usually under focus. While the presence of some speculative investors may improve the liquidity of the token, it is hazardous for it to be priced purely on its speculative value.
Overall, it is grossly un-Islamic, though it may not be possible to label a specific transaction as prohibited, since intentions behind transactions are largely unobserved. In the Islamic framework, the intrinsic value or the value that the token gains from the credibility and utility of IBF Net as a project is what governs the economics of tokenisation.
A Demand-Focused Approach
Prices are an outcome of the interplay of the twin forces of demand and supply. In an Islamic framework, the forces of demand and supply should be allowed free play without any human intervention on either side.
Price manipulation takes various forms in crypto markets, and is rightly frowned upon by Shari’a scholars, as well as regulators. However, in the absence of effective curbs, the crypto market is characterised by large-scale manipulation. Even in the case of some so-called Shari’a-compliant cryptos, the usual strategy is to control the supply of tokens via vesting; generation of artificial volumes via bot-trading or wash-sales and peg prices artificially at desired levels to create “windows of opportunity” for promoter-investor groups.
IBFX tokens follow a completely different strategy focused on the demand side of the equation where demand is expected to rise steadily as the intrinsic value of the tokens increase. The intrinsic value is a function of volumes, which in turn, is dependent on the number of users/members in the network.
IBFX tokens without crossing a threshold level of intrinsic value will not be listed at any crypto exchange. Yet, full liquidity will be provided via a buy-back option by the platform. Therefore, till listing, IBFX will perform as a stablecoin linked to USD. It is expected that, once the size of the network crosses the 25k-30k mark, say, within a span of one to two years from the issue of tokens (latest before the end of 2023), the network will take steps to move from buy-back-facility to listing on a crypto exchange. With a robust intrinsic value in place, the tokens will be less susceptible to speculative attacks and can hold on their own and bring additional value to the tokenholders due to improved liquidity. So, how does the IBFX token get its intrinsic value? The intrinsic value is created by the underlying project and how much percentage of this value is captured by the token. This is one of the primary functions of tokenomics or “token economics.”
William Mougayar came up with this term and also with the three tenets behind a token’s value. According to Mougayar, there are three tenets to a token value: Role, Features and Purpose. Each token role has its own set of features and purpose. Let’s examine each of the roles that IBFX can take up:
- Rights (bootstrapping engagement): By taking possession of IBFX, the holder gets a certain number of rights within the ecosystem, e.g., partial access to e-library resources, right to undertake a survey, voting rights on membership privileges etc.
- Value Exchange (economy creation): IBFX aims to create an internal economic system within the confines of the IBF Net project itself. This helps the buyers and sellers to trade value within the ecosystem. This creation and maintenance of individual, internal economies are one of the most critical tasks of tokens.
- Toll: It can also act as a toll gateway for one to use certain functionalities of a particular system, e.g., you need to use IBFX tokens to gain full e-library access and a few other premium services, such as preservation of documents on Blockchain and free transfer of money within the network.
- Function (enriching user experience): IBFX also enables the holders to enrich user experience inside the confines of the particular environment, e.g., holders of IBFX will get the rights to enrich the customer experience by adding advertisements or other attention-based services on the IBF platform.
- Currency (frictionless exchange and store of value): IBFX can be used as a medium of intra- network exchange transactions and store of value inside the IBF ecosystem.
IBFX tokens having multiple properties will have more intrinsic value.
Network Effect on Value
There is a strong relationship between the size of the IBF network, the number of transactions on the network and the value of that network itself. This is captured in Metcalfe’s Law – a theory of network effect.
Metcalfe’s law states the effect of a telecommunications network is proportional to the square of the number of connected users of the system (n^2). For example, if there are two telephones in a network, then only one connection can be made. If there are 5 phones, then one can make up to 10 connections.
However, if there are 12 phones in the network, then one can make 66 connections, implying an exponential value growth. Furthermore, note that networks tend to have a life of their own. As more and more people use them, they tend to attract more and more users. This is the reason why most successful networks tend to enjoy extreme exponential growth.
Since a large chunk of the initial members of the IBF Network would largely come from the community of students, researchers and academia, the demand and supply for IBFX will reflect these factors. Some of the factors contributing to demand-supply for IBFX in Phase I are described as follows:
Members can earn Type I IBFX tokens by (i) sharing (priced) articles, books, and reports (ii) reviewing submitted resources (iii) listing courses (iv) providing research guidance (v) mentoring and coaching (vi) providing editorial assistance (vii) providing translation services (viii) developing a new design/ promotional banner/ video (ix) selling listed halal goods and services and such.
Members can earn Type II IBFX tokens by contributing to strengthening the Network in various forms, e.g. (i) bringing a new member (ii) contributing an unpublished document/ article to e-Library (iii) posting a blog (iv) responding to forum discussions meaningfully and (v) responding to surveys etc.
At the discretion of the Network Admin and Peer Review, each of these services (that traditionally are viewed as intellectual pursuits and are offered at zero or minimal charge), will carry an award of certain IBFX Type II.
Members can earn Type III IBFX tokens by volunteering to contribute efforts/ hours for listed projects on Platform I and opting for this token instead of IBFS Type I tokens. Members can spend all types of IBFX tokens for the following products and services offered by the Network:
- Enrol for courses offered
- Buy articles, books, and reports
- Gain access to resources
- Place adverts and promotional material
- Conducting voting among members
- Conducting surveys involving members
- Avail other membership privileges
However, they may need IBFX tokens Type I and III for products and services such as the listed halal goods and services offered not by the Network itself, but by Sellers listed on the Network. Also, Type III tokens when accompanied by a lock-in period for conversion to fiat money, will have a lower discounted value compared to Type I tokens. External sellers may still accept Type II tokens if they have avenues to spend the same within the Network.
Other than the transactions demand for IBFX tokens, there may be a speculative demand for them, if they prove to be good stores of value in the face of steadily appreciating IBFX values vis- à-vis fiat money.
The so-called economic merits of speculation (providing liquidity to tokens), would not be relevant any longer for members in the presence of the buy-back facility offered by the Network. However, the presence of modest speculative demand would make it easy for the Network to maintain the conversion peg or even affect a steady increase in the same – the exchange rate of IBFX against fiat money.
It would, however, be in the interest of the Network to bring this about through influencing other fundamental determinants of intrinsic value and not through encouraging speculation as this may induce volatility in rates. This would be a source of risk and unIslamic at the same time.
As far as the supply of IBFX is concerned, a total of 10 million IBFX have been minted with an initial USD equivalent of 1 million. IBFX Type I tokens will be directly held in the user’s balance while the Type II and III tokens will be held in escrow smart contracts.
In case full collateralisation is needed as a regulatory requirement or good practice for the issue of IBFX cryptos, it is possible to see that the size of collateral backing is much lower than the quantum of IBFX minted. If we estimate the share of Type I tokens to be 30 percent, Type II at 30 percent, Type III at 30 percent and Type IV at 10 percent, and if we assume that a maximum of 80 percent of holders of the tokens I and III would opt for instantaneous conversion to fiat, one may estimate that a maximum of 24 percent [0.8 * 0.3] of the IBFX tokens (initial value estimated at US$1 million) may need to be backed by collateral of corresponding value to avoid any probability of systemic failure arising out of inability on the part of the Network to meet the demand for conversion of IBFX into USD.
There is no need for collateral for IBFX Type III, as it is fully backed by IBF Waqf Pool. However, if a lesser percentage opts for instantaneous conversion, which will happen as the token will prove to be a good store of value with zero downside price risk and liquidity risk, then the collateralisation requirement would steadily come down. With steady appreciation in the exchange rate over time, the speculative demand for IBFX may further push down the percentage of holders opting for instantaneous conversion of IBFX into USD.
A USE CASE IN THE REAL ECONOMY
Using a combination of web 3.0 technologies, IBF Net is in the process of creating various solutions for the real economy with a difference. While the bulk of the NFT marketplaces aims to deal in artworks, music and collectables, IBF Net aims to significantly disrupt the book publishing sector through its NFT marketplace and metaverse. NFTs enable the authors to time-stamp and preserve their work on the Blockchain while safeguarding the same from risks of plagiarising by providing verifiability and traceability. Given that the book publishing industry is notoriously known for its exploitation of new authors in the form of meagre royalty rates and gross understatement of volumes sold, IBF Net expects to address these pain points by ensuring that auto-executing smart contracts instantaneously transfer royalties to the authors every time a copy of the book is sold to a new buyer. The process works as follows:
- IBF Net converts the manuscript received into a non-fungible token (NFT) fragmented or in multiple copies and places the same on sale at its NFT marketplace. The author continues to hold full intellectual property rights. On every sale, s/he receives a pre-determined share of the stated original price (revenue), usually pegged at 55 percent. Subsequently, when an existing owner of the book re-sells to a new buyer on the platform, s/he receives a share again (usually 35% along with 40% for the existing owner) of the resale price. The payments are automatically executed instantaneously through a smart contract, as and when a sale takes place. This is how the fairness, as well as transparency of the process, is ensured.
- IBF Net also provides an opportunity to all authors to design a learning course around their book/ learning package and offer it via IBF Net’s Excellence e-learning platform and/or inside its metaverse (currently under development). The author receives a further share (usually at 55%) of the tuition/enrolment fee paid by the participants for performing the role of the course instructor. It is also possible to engage a third-party instructor for providing support in which case the author’s share is calculated as a percentage of the net revenue (after an agreed upfront remuneration is paid to the third-party instructor).
The entire process is fully transparent (viewable by the public on the Blockchain), granular (every single sale is accounted for individually), immutable (royalty rates form part of auto-executing contracts), as well as participative (via the metaverse).
Towards an Islamic Metaverse
The immediate objective of this initiative is to develop a miniaturised Islamic economy – a portfolio of platforms catering to philanthropy, not-for-profit and for-profit sectors – covering the entire range of Islamic contracts using Algorand smart contract technology. Moving forward, IBF Net seeks a further transformation into a metaverse economy.
Increasingly commonplace among the internet community, the term “metaverse” evokes mixed reactions as it is subjected to varied interpretations. At one extreme, Muslims are particularly averse to the idea of a fiction-like world that is dominated by a single corporation that wants to own and control the servers and databases, where they could alter any information about anyone or anything, change the rules of the world, and can create an infinite amount of money. Though it remains largely like a scene from science fiction or highly popular digital games, some visionaries have predicted that this metaverse is going to be far more pervasive and powerful than anything else. If one central company gains control of this, it will become more powerful than any government and be a god on Earth. This should be a dreadful scenario for most of the 1.8 billion Muslims on Planet Earth. Islam as a religion abhors any attempt by any actor to monopolise resources.
At the other extreme, there is another possibility. This is an open decentralised metaverse, a virtual world (example: Decentraland) powered by Blockchain technology, where no single party controls anything. Consensus rules here. This metaverse has its own economy and native currency, where one may earn, spend, lend, borrow or invest value interchangeably in both physical or virtual sense and most importantly without the need for a trust-inducing intermediary or a government. How acceptable is this idea to the Muslims of this world? Islam as a religion also abhors the idea of statelessness, anarchy and a regulatory vacuum. The original idea of metaverse has been about blurring the distinction between the physical and the digital worlds and experiencing VR (Virtual Reality), AR (Augmented Reality) and MR (Mixed Reality).
VR is fully immersive, that tricks one’s senses into thinking that one is in a different world. AR overlays digital information on real-world elements, keeping the real world central, but enhancing it with other digital details. MR, on the other hand, brings together both the real world and digital elements. One interacts with and manipulates both the physical and virtual environments. The most-hyped case for the Islamic world has been the recent Saudi Arabian initiative that will allow Muslims all around the world to touch the Black Stone at the Kaaba in Makkah virtually through Virtual Reality (VR) technology. Muslims believe the famous Black Stone descended directly from Heaven and was given to Prophet Abraham by the angel, Gabriel. Earlier initiatives in this regard have been less vocal and visible about the value they bring in. A handful of apps offer VR views of the holy city of Makkah without suggesting any equivalence with an online “pilgrimage”. A case in point is Muslim 3D developed by Bilal Chbib of Bigitec Studio, which offers a virtual journey around the holy mosque. A few other apps seek to create virtual Hajj experiences as well such as Experience Makkah from Vhorus (Egypt), Manasik VR (Saudi Arabia), and Miradj 360 VR (Tatarstan).
Recreating the experience of visiting Makkah with digital simulations of several rituals that are part of the Hajj and Umrah pilgrimages, may be welcome ideas during the pandemic-related measures that prevented large sections of global Muslims to perform the real pilgrimages. The desire to experience these holy places virtually is addressed by such apps that explain their growing popularity. At the same time, neither the scholars nor the creators and users of such apps see any equivalence between the real pilgrimage and the gamified experiences and VR walkthroughs. Some see the latter as ideal for educational purposes or for serving as a rehearsal for a future visit.
If there is any consensus observed in the multitude of views on the possible beneficial use of such experiences, then it is for educational purposes and on the impossibility of any substitution of virtual experiences for real ones. The verdict is clear. Neither virtual prayers in space mosques nor virtual pilgrimage in Makkah can remotely be seen as a substitute for real acts of worship (ibadah).
Also underlined is the fact that Islamic traditions generally abhor any attempt to draw pictures of its prophets or recreate objects and characters from the “unknown” and relating to after-life, such as angels, Heaven, and Hell. In matters relating to Shari’a or Islamic law, scholars differentiate between matters pertaining to acts of worship (ibadah) reflecting the relationship between humans and God and matters relating to transactions between humans (muamalat). The economic relationships clearly fall within the latter. In matters of ibadah, there is little room for any change or modification and therefore, for innovation. For instance, all Muslims are enjoined to perform prayer (salah), pilgrimage (hajj), fast during the month of Ramadan and perform other acts of worship in a prescribed manner. In matters of muamalat however, the rules of any game may need revisiting in the light of changing realities. New games are expected to appear on the scene. Scholars are expected to exert themselves (perform ijtihad) to find and prescribe the rules of the game in the light of the Quran and Sunnah.
Every game is acceptable in Shari’a, as long as there is no violation of specific prohibitions relating to riba (profits from selling money/debt), gharar (inadequate information creating uncertainty about the payoffs and inaccurate information leading to fraud and deceit) and other forms of unjust enrichment. Every innovation, therefore, demands fresh research and scrutiny by scholars before being considered acceptable or not. This applies to the idea of the Islamic metaverse as well.
To sum up, the idea of an Islamic metaverse should exclude any possibility of fulfilling religious obligations in the virtual world. A virtual implementation of an act of prayer (salah) is not considered valid. Similarly, in the case of pilgrimage, the physical location (Makkah) is a condition that can never be diluted. The virtual replication of such acts in the Islamic metaverse may be deemed desirable for learning and education purposes only. In the world of muamalat however, the idea of an Islamic meta economy is pregnant with enormous possibilities. The idea of metaverse now is understood in multiple ways. There are attempts at creating virtual worlds where the transfer of value for the users is bi-directional, from digital to physical and physical to digital. There are platforms with purely virtual goods and services being transacted against fiat money. There are platforms with physical goods and services being transacted against crypto money. Some platforms facilitate the exchange of cryptos for fiat and vice versa. In addition to these three possibilities involving the flow of value from physical to virtual and vice versa, one may also think in terms of the flow of value within the virtual world involving the exchange of virtual goods and services against cryptos.
An Islamic meta-economy should theoretically admit all possibilities but without violating the fundamental prohibitions as stated above. Indeed, such an economy can even perform better in terms of addressing the Shari’a norms in some cases. A case in point is an ecommerce platform, where VR technology enables the buyer to better assess the value contained in the object of purchase, and thus, reduce the level of gharar or uncertainty.