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Decentralized Finance (DeFI)

Barriers to Adopting Decentralized Finance (DeFI) in the Middle East

Last Updated on February 24, 2024 by Hamza Khan

Financial institutions in the Middle East have recently focused on adopting blockchain technology. Many of these institutions, including banks, insurance, and FinTechs, have gradually accepted and incorporated blockchain, web3, and decentralized finance (DeFi) in their products and services. Also, central banks are pushing the development of these technologies in the Middle East. Here, they are in charge, in control, and have a lot of influence over how laws are made. Some of these countries include Turkey, United Arab Emirates (UAE), Saudi Arabia, etc.

DeFi offers numerous benefits to crypto users. These benefits include cheaper costs since no middlemen are involved and more transparency because all activity is visible to all users. Additionally, DeFi offers enhanced security and validity since it is impossible to alter saved transactions.

Barriers to DeFi Adoption in the Middle East

Despite the rising adoption and popularity of crypto and DeFi in the Middle East, many people in the region still have mixed feelings about fully embracing blockchain technology. Some of these reasons include the following:

1. Lack of/ Improper Regulations

The DeFi ecosystem currently lacks the regulatory frameworks that are well-established in traditional finance. Additionally, there are not enough people to continue the regulatory procedures, and even the rules are not sufficiently regulated. Regulators will need time to define their responsibilities and provide the monitoring required to increase public trust in the system because of the complexity of DeFi.

2. Islamic Finance Law

Islamic finance is a financial system based on Islam’s ethical teachings. Additionally, it offers a variety of special investment and financing options and investing instructions. Shari’ah is the foundation of Islamic finance. Islamic law and principles are upheld via a set of procedures known as shari’ah-compliant funding, which includes prohibiting interest and supporting moral investments that adhere to the Qur’an. Consequently, as a Muslim, some scholars believe it is improper to use money to earn more money. They believe that money does not increase in value and should not be utilized for anything that can generate interest.

Earnings from interest or speculation are argued as banned, or “haram.” As a result, these types of income are deemed usurious and exploitative. Borrowers should typically pay interest on their loans. Sharia law, on the other hand, disagrees. Due to this diverging views, several central banks and government officials are sceptical about crypto. This unequal attitude persists in the region today toward these cutting-edge technologies.

3. Misconception of DeFi

DeFi developments in the Middle East region are also being slowed down as a result of the technology’s alleged “gambling” characteristics. Most people think investing in cryptocurrencies would increase the interest in your money. On the other side, cryptocurrency is quite volatile. Thus one cannot be certain of reaping significant financial rewards from it. Therefore, investing in cryptocurrencies is more similar to gambling. Islam forbids gambling and anything that resembles it. Thus, there is a lot of controversy around anything having to do with cryptocurrency and DeFi.

Conclusion

Blockchain technology and DeFi have improved financial services in the middle east region. Nonetheless, issues still have prevented mass adoption by countries in these regions. However, if these issues are considered, the number of people in the crypto space in this region will greatly increase.

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