This article describes the Quicktoken platform, offering many features that make it attractive to both buyers and sellers. Banks and businesses can provide minimal risk (at the Basel level) and predetermined passive income, while investors can earn income in fiat currencies as well as additional income from QTKX dollar rates.
In today’s world there are two financial models at the same time. The first is the classical model. It is the most common and is used in Europe. Asia and America. Apply this model, as a rule, countries which profess different religions. The basis of this model is the possibility of obtaining interest income on funds placed by the lender.
The second model began to spread relatively recently – in the 20th century and belongs to those countries whose population is Muslim. The principal difference of the second model is that interest income is forbidden, and the creditor can earn on his funds only as an equal partner. Equity investments in companies profiting from alcohol, weapons, cigarettes and gambling are also unacceptable. This model is the basis of the so-called Islamic economy, in particular Islamic banking.
Although the size of the Islamic financial sector is now substantially inferior to traditional financial institutions, the sector is growing at an accelerating pace. In 2012, Muslims accounted for 23% of the world’s total population. In 2021, their number has already increased to 24%. Muslims are the fastest growing ethnic group in the world, growing at about 1.8% per year and by 2030 the number of Muslims will be 2.2 billion. Islamic finance assets reached $2.88 trillion in 2019. From 2019 to 2024, annual growth is projected at 5%. In 2024, total assets will grow to more than $3 trillion. Given that ethical and sustainable investing is a byproduct of Sharia law, which creates the principles of Islamic financial technology, it is attracting interest from Western societies who are eager to join the endeavor.
The role of fintech solutions in the development of Islamic banking.
Fintech companies offering their services in the Islamic economy are mainly targeting a new customer base, which represents the young Muslim population around the world, which has been highlighted as a decisive factor determining the prospects of Islamic fintechs, as they account for 29% of the global population under the age of 30. This younger demographic is well versed in technology because of their high level of access and use of mobile and Internet services compared to the global average.
The fourth industrial revolution is changing the world around us faster than ever before. One recent solution is embedded finance-the seamless integration of financial services by enterprises. The main goal of embedded finance is to simplify the customer experience by eliminating extra steps to obtain financing, in which the customer can get the product and financial service in one place. The Quicktoken platform offers investors and businesses attracting investments the possibility of direct interaction in which the bank plays the role of intermediary, which is in line with Shariah principles.
While embedded finance is a new concept, this notion is organically embedded in the very foundations of Islamic economics along with the prohibition of interest income. Islamic economics does not encourage the separation of the financing process from business transactions in the real economy. In fact, the whole modern Islamic banking industry has been designed to reconnect finance and business through trade and investment contracts like murabaha and wakala. These Islamic financial principles create a bridge between finance and business, which is the basic philosophy of embedded finance.
The Quicktoken platform is designed to be a bridge that connects all types of Islamic financial institutions with all types of retailers, whether you offer goods or services. Quicktoken is a revolutionary and innovative solution that aims to redefine the functioning of Islamic finance by making it more efficient and inclusive. With this digital solution, Islamic finance becomes more accessible to all segments of society. Quicktoken helps Islamic financial institutions reallocate financing risks to investors and expand their reach to new areas and communities that they would not normally be able to reach using traditional investment technologies.
An example of financial transactions of Islamic Financial Institutions used on the Quicktoken platform.
For the functioning of the platform in accordance with the principles of Shariah, such financial operations as Wakalah and Murabaha are used. Let us formulate the main features of these operations in the light of their application on the platform.
Yo So, Wakalya is a contract equivalent to the agency contract. Its object on the Quicktoken platform is money and it is like a kind of trust management contract concluded for a fixed term that cannot be changed.
The following norms are established for the Wakali used on the platform:
- the agent is given full freedom to choose how to invest the principal’s funds (with Shariah restrictions);
- the agent is obliged to inform the principal regularly about the progress of the assignment;
- the agent receives a fixed fee for the management of the principal’s property, regardless of the result;
- agent has the right to withhold part of the income arising from the execution of the assignment, as an additional remuneration for the success, if the financial obligations established by the contract to the principal and the possibility of such withholding is provided in advance in the contract of agency;
- the principal assumes all the standard risks associated with the management of his money, provided that the agent acts in good faith, professionally and ethically
- agent is responsible for loss of principal’s money and lost profits resulting from fraud, embezzlement, negligence, etc;
- agent is not responsible for loss of principal’s money and lost profits as a result of events beyond his/her control;
- The agent and the principal undertake not to terminate the contract for a certain period of time.
Murabaha is a contract on sale with a mark-up of the goods from the bank to the client. In a purely schematic way, the transaction is the purchase by the Bank and its subsequent sale of the goods required by the client, provided that the cost price of the contract object, the amount of expenses associated with the purchase and delivery procedure and the Bank’s margin (mark-up) are known to both parties and are fixed in the contractual documentation.
The Murabaha contract will be valid only if:
- its object physically exists at the time of the contract;
- the seller not only legally owns the object, but also has the ability to dispose of it;
- the conclusion and execution of the contract coincide in time.
The modern murabaha takes the form of a purchase order murabaha, which reflects the content of the first stage of the financing process: in order for the bank and the client to get a formal basis for starting cooperation, the latter sort of places a pre-order with the former, but the offer and acceptance have no place yet. Although there is not yet a contract of sale between the parties, the quasi-contractual relationship arises from the Shariah concept of promise. Today, a murabaha-based transaction is always implemented in conjunction with a bey bit-taman ajil (BBA) contract, that is, a deferred payment of the price. The bank and the customer may agree that the payment will be made on a certain future date in one, total amount, but most often the payment is made in installments and the terms of such installment are part of the contract documentation.
As a consequence, the bank has the right – and of course it enjoys this right – to set a higher markup (margin) compared to the markup for immediate payment against delivery. The main argument in favor of the permissibility of such an increase is that there is not an increase in money from money, but an increase in the price of a real asset that has intrinsic value. In addition, selling with deferred payment creates convenience for the customer. We can say that it is a kind of additional service, which has its own price.
However, the main condition of the price premium in the murabaha, as in any Islamic debt contract, is that the seller assumes the risk as owner of the goods before the sale. In addition to the risk of damage or loss, the bank may incur losses if the customer reneges on his promise, if it is given in a form that does not allow recourse to the courts.
In order to realize their intentions, the bank and the customer must take a number of steps. The first stage of murabaha financing is the conclusion of a framework agreement. The subject of transaction, approximate sum of transaction, bank’s margin, all rights and obligations of the parties, etc. are fixed in it. By signing this document the Bank expresses its readiness to search the market for the goods or goods which can be demanded by the client during the validity period of the general agreement. The signature of the client, in turn, means the promise (obligation) to buy these goods.
Ideally, the bank itself should study the market, select a supplier, and arrange for delivery. However, this would require large expenditures to maintain qualified personnel and provide for their activities. That is why the bank, guided by the master agreement, appoints the client as its agent, concluding a contract with him. Note that in this case no remuneration is due to the agent.
The client, acting as an agent, performs all necessary actions on behalf of the bank, and then, acting in his main capacity, sends the bank a request for the purchase of goods, specifying the price, as well as a detailed description of the goods and the seller’s details. The bank transfers the desired amount directly to the seller. The agent takes delivery of the goods and notifies the bank thereof in writing, thereby confirming the conformity of the quantity and quality of the goods to the terms and conditions of the contract. At the same time he makes an offer to the bank to buy the goods from him. The bank accepts the offer, specifying the amount payable broken down by its components (purchase price, overheads, margin) and the payment procedure. At this point, the actual execution of the murabaha contract occurs and the agency agreement expires. The client becomes the owner of the goods and at the same time the debtor of the bank until the last payment is made.
It is necessary to answer one peculiarity of the murabaha contract, which allows it to be used on the Quicktoken platform.In order to. In order to be able to transfer parts of the contract to different principals. It is necessary to initially conclude not one contract with a client who wants to buy, for example, 1000 kilograms of tomatoes, but 1000 contracts for 1 kilogram each. Of course, all these contracts are absolutely identical and in the normal functioning of an Islamic bank such splitting is not required. But for the Quicktoken platform such splitting is necessary, and in terms of execution the client and the bank will sign one general agreement as before.
Let us summarize the features of murabaha used on the platform that distinguish it from a loan:
- it cannot be a way of providing liquidity;
- it does not involve the allocation of a sum of money to the client at interest, but the purchase and sale of a real asset at a price higher than its cost;
- the bank at a certain stage of the transaction is the owner of the asset and must bear the related risks;
- the contractual price cannot be reconsidered;
- the contract may not be renewed on stricter terms;
- penalties do not create income for the bank.
- the contract is split into many small contracts within the framework of the master agreement.
The scheme of Quicktoken platform for Islamic finance
Let us now consider how exactly the Murabaha and Wakal contracts work on the Quicktoken platform.
- the Bank enters into murabaha agreements with clients, and in such a way that each contract is divided into many smaller contracts of the same price.
- This package of murabaha contracts is transferred by the Bank to the Platform for further tokenization. The Bank agrees with the Platform on the expected parameters of QTK token packages (yield, placement term, placement price).
- The Platform forms the packages of QTK tokens and sells them under contracts to the Bank’s principals in exchange for cash.
- The platform transfers the funds received from the principals to the Bank.
This algorithm is shown schematically in Figure 1. As a result of this scheme, the Bank acts as an intermediary and actually closes the murabaha contracts to its principals under wakal contracts. For this operation the Bank can withdraw its commission as an intermediary and leave part of this commission on the platform. In this case, all risks on the murabaha contracts are transferred to the principals. Of course, the Bank continues to work with all its murabaha clients, but no longer as the owner of such contracts, but as an intermediary between clients and principals. This allows the bank to earn a commission at a time, to get the proceeds from the previously invested funds in the murabaha contracts, and to use these funds to form a new murabaha package with new clients.
The quenching of QTK packets takes place in the sequence shown in Figure 2.
- Clients return debts under murabaha contracts to the bank (already as an intermediary).
- the bank transfers (minus its commission) customer funds to the platform
- The platform transfers (minus its commission) funds to principals under wakal contracts.
- Principals present QTK packages to the platform for redemption
- The platform returns the claims on the murabaha portfolio to the bank.
In conclusion, it should be added that principals can exchange QTK packages in the secondary market using the Quicktoken platform application for fiat currency and not wait for their redemption period. This allows to get not only profitable and reliable (due to inclusion of murabaha claims from different clients into one package of QTK), but also liquid instrument in case of sufficient number of principals. There are no analogues of such instrument in the market today, which gives confidence in its successful development.
July 5, 2023