Tech by VICE

The Bitcoin Startup that Helps Muslims Get Loans Without Breaking Islamic Law

Matthew Martin is using the digital currency to circumvent Islamic rules about finance.

by Camilo Salas
Jun 17 2015, 9:00am


Matthew J. Martin is a 30-year-old who grow up in Earlville, New York as the son of a teacher and a skilled blue collar worker. He now lives in San Francisco, where he is building a business around using Bitcoin to allow Muslims around the world to participate in finance without breaking Islamic law.

As you may know, Islamic law prohibits Muslims from trading through interest-based markets or companies. Martin—who converted to Islam five years ago while he was working deep in the financial tech world—is trying to change that with his startup Blossom Finance.

Martin's conversion to Islam came about after a broken heart. "Years ago I was dating this girl," he said. "She was not a practicing Muslim but she was from a Muslim background, and we thought we were going to get married." She told him he had to convert if they wanted to get married, so he started researching the religion.

"We ended up breaking up," he said. "But I became more interested in this religion I was learning about, mostly from an academic, intellectual perspective… The more I studied Islam, the more I realized this is very compatible with what I already believe, until one night I had this very vivid dream, and in my dream I was praying in a mosque and... I made Sujud, the act of prostration with your head on the ground. When I did that act in prayer, I felt the feeling of enlightenment enter my body and I wept in the dream. I started crying out of joy, out of this amazing sort of passion, just beautiful peace and knowledge and understanding I felt in that moment."

"It was the most beautiful dream or experience I had in my life, so when I woke up I said: 'OK, I think thats a sign, I should become Muslim now.'"

Months before this enlightenment, Martin was working in the financial technology industry—first at Xoom, a company dedicated to mobile money transfers, then Boku, which specializes in mobile payments, and later Monitise, part of the mobile banking business. That's when he was first introduced to Bitcoin, the decentralized digital currency that works a lot like cash on the internet. He felt a revolution was coming.

"The one who consumes interest, on the day of judgement will face God and the messenger against him."

"I was really excited about Bitcoin from the very early days," he told Motherboard. "That's when Bitcoin was still around 40 cents per Bitcoin." The price of a bitcoin today is now more than $200. He started a Bitcoin company, Bitcoin By Mobile, that allowed people to buy bitcoins and have the charge accrue to their cellphone bill.

"In those days there wasn't a very easy way to try Bitcoin," he said. "Not everyone wanted to create an account and link a bank account and move money from their bank to this company they never heard of, to buy a product they don't really understand. It was like a big challenge, so that's when I realize I could set up a service where I can charge people's mobile phone bill directly and allow them to buy like 50 cents, one dollar, 10 dollars worth of bitcoins."

The business was moderately successful, he says, but he started to have trouble with cash flow. His company sold Bitcoin, but had to wait 90 days for payment. He needed a loan to cover the cap, but his religion wouldn't allow it.

"I was like, 'wait a second, someone must [have] already thought of this problem,' so I looked and I looked and I looked and there was no solution," he said. "And then I said 'Hey, wait a second, this is actually a more important problem, this whole 'how Muslims get financed for business' problem. That's part of the reason why I decided to start Blossom."

The laws of Islamic business

Muslims make up nearly 25 percent of the world's population, but sharia (Islamic law) compliant assets are only 1 percent of the world assets, according to Islamic Finance, a private initiative owned by Islamic Finance and Sukuk Company, which serves the Islamic banking sector.

That means there's a lot of money exchanged hand to hand between Muslims—a lot of investments based on friendship or closeness. There is also a lack of sharia-compliant assets crossing international borders, Martin says.

And this happened because there are rules, a lot of rules. "What I think is really interesting is almost all Muslims know the 'don't' part of the rules, like you can't use interest, you can't take a loan with interest, and you can't loan someone money with interest," Martin said. "It's haram, it's impermissible."

There are two source for Islamic jurisprudence, Martin says: one is the Quran, and the other is Hadith, which is considered a record of the prophet Mohammed's teachings.

"The Quran is very clear on interest. It says: 'the one who consumes interest, on the day of judgement will face God and the messenger against him,'" Martin said.

Mohammed expanded upon this prohibition in the Hadith, Martin said, by adding that not only is the lender guilty, but the borrower and "the one who witnesses the contract between the two, are equally guilty," Martin said. "So based on sources like this… Islam jurisprudence says that just taking consuming interest is not permissible, but also spending, dealing interest and even doing a contract," he said. "Islamically, we are not supposed to even sign a contract, like a credit card agreement that has interest in it, right? Because we essentially agreed to pay interest, even if we pay our card balance every month." (Note: there are some sharia-compliant credit cards, and some Muslims believe regular credit cards are halal, or permitted, if paid off every month.)

So how does Blossom Finance, his interest-free investing machine for Muslims, get around the prohibition against charging interest while still making money? Blossom partners with microfinance institutions to make "investments" in small businesses, then takes a 20 percent cut of the profits.

"Investments, unlike loans, are capital put towards a specific business or project. They carry the risk of business failure—and that's one of the key principles in Islamic finance—profits and risks must be shared," Martin said.

Blossom is now based in Indonesia, where there is a demand for Islamic finance

Blossom therefore relies on a financing tool used by prophet Mohammed called mudaraba, which is basically a profit-sharing model.

"Before they were married, the Prophet Mohammad, peace be upon him, entered into a mudaraba profit-sharing agreement with his first wife Khadija to make the trip by caravan and sell merchandise on her behalf," Martin wrote in an email. "He later narrated the story to his companions to illustrate the ideal model of Islamic finance. We're combining traditional mudaraba financing with modern financial technology that allows global reach."

If there is no profit, Blossom takes no fee. This allows both Blossom and the investor to benefit without violating the sharia prohibition against taking or paying interest.

Martin chose Bitcoin because the digital currency allows for transparency: all transactions are recorded in a central ledger, called the blockchain, which anyone can look at.

Blossom is now based in Indonesia, where there is a demand for Islamic finance. While there wasn't enough demand for Islamic financing in the US, the opposite is true in Indonesia, where there are more than 200 million Muslims, according to Pew Research. "Eighty percent of the population is 'unbanked,'" Martin said. "There is a huge need for investment capital."

Blossom recently got its first investment from BMT Nusantara Condet, a financial institution that operates under Islamic principles.

"This investment will help 10 to 20 micro businesses within Indonesia to expand," Martin said. "The idea of helping people create their own businesses to earn a decent living holds a special place in my heart."

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