Three ways Malaysia is trialling blockchain

By Chia Jie Lin

Interview with Mastura Ishak, Programme Director at the Malaysian Industry-Government Group for High Technology..

Image: Pixabay - CC BY 2.0

You can only expect great things from an agency that calls itself ‘MIGHT’. This is the Malaysian Prime Minister’s task force to explore how the country can use emerging technologies like blockchain.

Across the world, governments and global nonprofits are turning to blockchain platforms to power e-voting, help citizens make collective decisions, and fight fraud in food supply chains. Mastura Ishak, Programme Director at Malaysian Industry-Government Group for High Technology, studies what kind of impact this platform will have on the country’s key industries.

“Blockchain is interesting because it allows small players to have a say about what's going on,” she says. In an exclusive interview, she shares three key areas of interest for Malaysia.

Powering renewable energy

MIGHT holds discussions with energy companies to understand how they can use blockchain to drive transformation in the renewable energy sector. Currently, MIGHT is monitoring the progress of energy companies that “are trialling the blockchain tech under ‘proof of concept’ initiatives,” Ishak shares.

Blockchain can speed up the adoption of renewable energy; putting energy on the blockchain means that sellers must declare how their electricity is generated. This transparency allows people to buy electricity on blockchain directly from sources of their choosing, like renewable energy. Buyers can even connect with private solar panel owners to buy their excess electricity. These one-to-one blockchain-based transactions are much more efficient and waste less electrical energy than distributing electric power over long distances from power stations.

One interested party is Tenaga Nasional Berhad (TNB), Malaysia’s sole utility provider. “We are actually identifying the use case for blockchain,” Fauzan Mohamad, TNB’s General Manager for innovation, told GovInsider last year. “We had a workshop for business owners on what would be the potential adoption.” While MIGHT’s talks with companies remain under wraps, the renewable energy sector’s blockchain-based initiatives will be announced towards the end of the year, according to Ishak.

Growing the agriculture sector

Image: Pixabay - CC BY 2.0

Meanwhile, blockchain can also help grow the agriculture sector, especially since the country relies heavily on its agriculture exports, she notes. Bringing agriculture onto blockchain “is interesting and relevant to Malaysia, as we export a lot of resources.” Agriculture contributed to 8.1% of its Gross Domestic Product in 2016, according to the Department of Statistics.
“What if you put your certification on blockchain?”
For instance, the agricultural industry can put their produce and certifications on blockchain. “What if you put your certification on blockchain?” Ishak asks. An important industry MIGHT is exploring is palm oil, which, as Malaysia wants to make its production more sustainable, she adds. Palm oil contributes 43.1% of Malaysia’s agricultural income, which far exceeds other exports like livestock and fishing.

Placing certifications for palm oil on blockchain can allow sellers and consumers to track the source of their palm oil, and monitor all transactions for palm oil supply chains to ensure that they are sustainable. This will then allow the government to track whether palm oil comes from sustainable sources, and regulate these practices to be more sustainable.

Islamic banking

Another area where blockchain will make inroads is Islamic banking. Its laws forbid interest collection, and mandate that debt creation must be backed by underlying material goods like gold, rather than intangibles like futures, which Western banks use. Their contracts face strict requirements to avoid interest and uncertainty, and every loan agreement requires at least three contracts involving multiple parties in order for it be valid. These extra hoops have created higher legal and administrative costs for major Islamic banks in Malaysia.
“How do you look at Sharia compliance in Islamic banking? Using blockchain to actually capture this market is important.”
In the next few years, Malaysia is interested to explore how blockchain can mitigate these costs, while allowing banks to remain compliant with Islamic laws. “How do you look at Sharia compliance in Islamic banking? Using blockchain to actually capture this market is important,” says Ishak.

Banks in the Middle East are placing contracts on the blockchain and pegging debts to units of gold - both in compliance with Islamic regulations. Saudi Arabia’s Islamic Development Bank (IDB) is developing “smart contracts” on blockchain to execute and enforce contracts in a transparent way. IDB electronically codes contractual terms on blockchain, which prevents tampering and allows these terms to be executed automatically - and only if their conditions are met. By automating the contractual process, the bank cuts costs usually associated with having to go through at least three parties.

Meanwhile, cryptocurrency firms in Dubai and Malaysia have pegged physical gold to cryptocurrency units, allowing local banks to create debt in compliance with Sharia regulations. “Malaysia is right there,” she adds. “There's all these potential to be looked at as a region.“ Blockchain is streamlining contracts and making the debt process more flexible - a boon for Muslim-majority Malaysia.

In the years to come, blockchain can become a potent force for driving transformation across Malaysia’s economy, and MIGHT will be there at every step of the way.