Purpose of this Shariah Paper

Abstract

The purpose of this paper is to evaluate the extent to which the cooperative savings solutions offered by Takaturn respond to the challenges faced by the Islamic finance industry, and that they are in concordance with the rules and principles of Shariah. The blockchain, Cryptocurrency and DAOs have given us an unprecedented way of building a truly cooperative entity, ensuring transparency, fairness and empowering the community to mutually aid and assist one another. In this paper, we will only consider shariah principles related to financial activities with authentic sources of their origin.

Introduction

At Takadao, we believe that there is a dire need, worldwide, for Islamic financial solutions not only for Muslims, but for every person who does not agree with the way conventional finance is facilitated today. Unlike traditional finance, Islamic finance offers services that cater to religious sensitivities by honoring financial and moral obligations to Allah and then to its stakeholders. Islamic finance focuses on spiritual, and socio-economic justice, and increased goodwill through a fair and balanced society, despite its benefits, the adoption by Muslims of Shariah-compliant financial alternatives has been hamstrung by several challenges. The most notable of which is the lack of transparency, resulting in low consumer trust and a lack of business and operational excellence.

To address the challenges faced by the Islamic finance industry, we are building a Decentralized Autonomous Organization (DAO) that is creating an ecosystem of products for our community, ensuring that all tools, decision-making processes, and organizational architecture is transparent and shariah-compliant. A DAO is governed by auditable smart contracts that cannot be changed by any one person. This enables a “trustless” entity, one that doesn’t require a centralized authority like national courts or police to enforce. Smart contracts are computer code that don’t have biases or fears and don’t make decisions based on emotions. We share the belief that halal decentralized financial alternatives should be globally accessible at a fair price and with impeccable transparency. The goal of our organization is to bring financial solutions to the global landscape in order to provide financial stability to participants having adverse life experiences, by leveraging the power of blockchain technology. We aim for excellence and every business decision and technical foundation is guided by a deep consideration for Islamic principles as well as integrity to ensure end-to-end shariah compliance.

One of these financial solutions is called Takaturn which stems from a desire to solve the problems faced by cooperative loan groups today.

Generally speaking, entering into a loan cooperative requires a high level of trust within the group, as there is a risk that anyone in the group may default on the loan. Most often, participants enter into cooperative loans with family, friends and people they trust.

To eliminate the trust problem and to create a trustless system, Takaturn requires participants to contribute to a “collateral vault” as a condition of participation. The collateral amount is gradually released back to participants as payments are being made. Such a system allows participants to borrow against their collateral and is particularly attractive to participants who do not wish to sell their collateral, but who nonetheless want to use their collateral to fund spending.

Creating a trustless system will allow Takaturn mini DAOs to scale in value giving participants access to larger loans. A trustless system will allow people who don’t know one another to engage in a cooperative loan.

In addition, leveraging the power of smart contracts, the management of funds is now fully automated and managed by the smart contracts, eliminating costs and potential for human errors.