A Potential For Mutual Symbiosis With Islamic Finance
The halal food market is witnessing a global growth with western countries embarking on offering halal food items to target the ever-growing population of Muslims, which is currently around 2 billion, making Islam the second-largest growing religion in the world. The halal food market is expected to exhibit a CAGR of 12.7% in terms of revenue from 2019 – 2027. The international relocation of Muslims to other countries and the recent refugee migration to western countries has increased the demand for halal food products, which is expected to witness steady growth on account of the increase in the global Muslim population. The global halal market is expected to be worth US$1,630 million by 2024 and its imminent growth has catapulted it into the limelight, bringing forth the drawbacks that can impede its growth.
Islamic Finance and Halal Food Supply Chain
The halal industry incorporates companies and businesses that are in need of financing and these needs can be met through Shari’a-compliant financing. The halal food supply chain is an integral component of the halal industry. Companies in the halal industry, whose core competencies revolve around offering a halal product need not be deemed as Shari’a-compliant by Shari’a screening bodies and hence investment into these companies would not be permissible. The halal industry would benefit by incorporating a Shari’a screening body to regulate its processes and oversees that there is no conventional financing in the company’s financial books, to be eligible for investment by Islamic investors.
Islamic finance and the halal industry are complementary, both sharing a common requirement of Shari’a adherence. Therefore, a symbiotic relationship exists between the two that needs to be exploited to advance the global Islamic economy. The financing needs of companies in the halal food supply chain can be in terms of working capital, liquidity management and trade finance amongst others, which can be met through Shari’a-compliant funding. Islamic finance can benefit from these companies being enlisted on the ethical indices series as potential alternative investment assets. The incorporation of blockchain in the supply chain of halal food products can serve as a bridge to forge the symbiotic relationship. As it provides information and procedural transparency at each stage of the supply chain, a vital component of the Shari’a screening process is to ensure that the product offered is truly halal.
Blockchain-based Halal Food Supply Chain
Research conducted by Zulfakar et al. identified five parts, which contributed to developing a conceptual framework for a halal supply chain, robust enough to withstand the present competitive environment. This article attempts to consolidate the different parts to incorporate the use of blockchain while establishing its need and significance in the domain.
- Halal Food Supply Chain Integrity
This is the core component of the halal supply chain that will ensure consumers’ trust in the product and continued revenue generation. It is vital to ascertain and verify that the halal integrity of the product has not been compromised at any stage of the supply chain by virtue of cross-contamination, particularly during warehousing and storage, transportation and terminal interchange. The argument is that quality assurance is certified by a certain organisation in the supply chain but as the movement of the goods progresses along the supply chain, the quality of the product varies with the next party handling the product. So a uniform product quality cannot be guaranteed and verified. Consolidation of the different intermediaries along the supply chain to work as a single unit is essential to preserve the integrity of the halal product.
Electronic seals can help in this process by tracking and monitoring the product as it moves through the supply chain. The use of smart thermometers would be helpful to monitor the temperatures along the supply chain to ensure they were within a certain prescribed threshold. To generate trust in these initiatives, blockchain can be used to record the movement of the halal product with information like origin, destination, surrounding temperature, location, and electronic seal ID at key points in the supply chain.
The immutability of the recorded information in the blockchain will reveal any manipulation and fraud along the way. To ensure that the warehouses, storage and transportation containers of the halal products are separate from the non-halal ones, then unique location/container IDs can clearly demarcate that cross-contamination has not taken place. Real-time updates on the blockchain-related to the movement of any product along the way can also make the different stakeholders in the supply chain work like a logical unit.
- Traceability
This deals with the ability to track and trace a halal product from its origin to the ultimate destination. The conventional methodology is incapable of providing this feature to halal products. The consumers have to rely on the information provided by the seller, who in turn relies on the information provided by an entire linear cycle of third parties, originating with the manufacturer. Blockchain by virtue of its inherent characteristics provides traceability. Halal supply chain coupled with blockchain and IoT, as in the case of electronic seals, can work together to ensure the traceability of goods from the origin to the destination. This will minimize the trust invested in interim third parties in the supply chain to authenticate the viability and halal integrity of a product.
- Assets specificity
This implies any durable investments of physical or human assets that are to support the successful execution of a transaction. In the context of halal supply chain, asset specificity stresses upon suitable storage, transportation and handling equipment. Separation of the halal and non-halal products is desired by the consumers and necessary to prevent cross-contamination. Majority of halal food exporters are non-Muslim countries, with Brazil, India, the United States and China being in the top ten. In order to minimize the operating expenses, logistic service providers do not segregate the halal products from non-halal ones. However, this has led to lack of trust in the consumers with residents of many European countries like the Netherlands and Belgium, are opting for local slaughterhouses.
In order to increase the adoption and market usability, demarcation of the infrastructure handling halal products is needed. The Middle East and South-East Asian countries have embarked on providing dedicated infrastructure for handling, storage and transportation of halal products and the same should be followed by the other countries to capitalize on this growing market segment. Majority of Muslim consumers prefer to not eat non-halal food and opt for vegetarian options rather than choosing doubtful halal products, whose integrity is questionable.
Blockchain can aid in making this segregation transparent to the consumers by recording the fleet container IDs and locations at critical points in the supply chain to ensure that they don’t resonate with the non-halal products. A consumer should be provided with information on containers originating from a particular source with IDs differentiating between halal and non-halal if there is no demarcation in the warehouses and storage locations. Route information on both kinds of containers, with halal and non-halal food products, should also be made available so a consumer can check if needed, that the containers with halal products perhaps follow a different route.
- Quality Assurance
Halal certification is a benchmark that can make consumers trust that the halal product is truly halal. However, the different standard-setting bodies in different geographical regions in the supply chain exposes the halal food products to different rulings. It is imperative and logical that the standard body at the consumer level should be satisfied and similarly, the halal certifying body at the origin of the product should verify the nature of the product. Once a product is certified at the origin, blockchain can be used to follow its trail with the help of IoT. Thereafter, at the destination, another halal certifying body should consolidate all the available information on the product gathered from the blockchain to give its approval. The halal certifying body at the origin and destination can be one unit or separate entities but both should be working together to ensure the authenticity and genuineness of the halal product.
- Trust and Commitment
Trust implies reliance on a trading partner in the supply chain industry to provide products of the expected quality. Trust is built upon transparency in sharing vital information. Blockchain can help build this trust amongst the partners in the supply chain industry through recording of goods-related information at the critical points in the supply chain. Commitment indicates the willingness of a partner to exert effort by means of investment of resources towards the business relationship.
A blockchain-based supply chain would require less trust and resource investment. However, being a nascent technology all the partners would need to be educated to garner the benefits of a blockchain-based supply chain. Investment in terms of education, technological infrastructure and mass education of the intermediaries would be needed to bring about success of the project. Once in placed, the future success and ROI of such an initiative can be predicted to be more than the conventional ones, in consideration of the minimization of costs due to automation and increase in market trust.
Figure 1 represents a simplified blockchain-based halal food supply chain. The halal food item is certified at the origin by a halal certification body. The relevant information is entered into a block of the blockchain. As the food item moves along the supply chain, at critical points, which may be a storage location, a warehouse or an intermediary party, updated information is entered into another block of the blockchain. The procedure is repeated until it reaches the destination. At the destination, a second halal certification body verifies all the information about the concerned food item from the blockchain and gives its approval by a second halal stamp. The consumer can verify all the information related to the product from the blockchain at any point.
Conclusion
An enumeration of the benefits of a blockchain-based supply chain, while adhering to a conceptual framework to realize the end goal of providing halal supply chain integrity, brings about the significance of the technology to the halal food market. In a nutshell, blockchain will ensure transparency, real-time information on any product, fraud circumvention, manipulation resistance, reduction of operational costs, auditability, enhancement of product quality, safety for health in consumption and a more structured halal certification process.
The blockchain-based infrastructure can go on to build more tangible relationships between globally distributed trading partners through a transparent networking base. An added advantage of using blockchain would be to have reliable data at all levels of the supply chain, which can be exposed to machine learning techniques to get insights on product demand, product usage, product fungibility with AI being used to predict future trends to ensure a ready supply of goods in demand. A very good starting point would be to have a consortium blockchain with all trading partners having dedicated nodes to validate the recording of information at critical points in the supply chain in their domain. Blockchain can play a pivotal role in consolidating the two emergent sectors, namely Islamic finance and the halal industry, to further Islamic economy in the global market and is an area that should be delved upon further.
