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Opinion: BLOCKCHAIN: The Next Frontier in Halal Certification?

| 15/09/2019
By Marco Tieman*

The fast-growing global halal market is leading to a high demand for halal certification services. High demand for certification services in combination with a decentralised form of accreditation by HCBs and inability to support the halal industry efficiently has shown cracks in the conventional halal certification model, which has become costly, inefficient and risky.

Introduction

The number of halal certification bodies (HCBs) worldwide is estimated at around 400-500, but the exact number is difficult to obtain because there is no international or Organization of Islamic Cooperation (OIC) registration database of HCBs. Generally HCBs do not recognise each other although some HCBs, such as MUI in Indonesia and JAKIM in Malaysia, create lists of which other HCBs they recognise for issues such as meat slaughtering, raw materials and flavours and perfumes. However, when it comes to slaughtering HCBs recognise slaughterhouses only once they have inspected them themselves. This decentralised accreditation approach to mutual recognition of HCBs is costly and in the long-run not sustainable. Various HCBs based in non-Muslim countries, which play a predominant social function for small Muslim communities, have voiced concern that they are not able to cover the high accreditation fees charged by large HCBs based in Muslim countries.

A series of high profile halal crises in recent years with top brands have shaken public confidence in the ability of brand owners and HCBs to assure the integrity of halal certified products. At the time of crisis HCBs are often not able to support brand owners in a timely and efficient way, creating major sales and reputation damage for companies that take halal seriously.

This has put high pressure on the HCB halal certification model to create a more robust and agile halal certification system that better supports halal certified companies in the case of a halal issue or crisis faced by a halal certified brand owner. This raises the question of whether the current method of halal certification is sustainable or if there a better alternative.

Blockchain

Blockchain is a disrupting technology and part of the fourth industrial revolution, which is expected to change the way we work and live. Blockchain technology, through smart contracts (protocol), could digitally prescribe processes and requirements according to a halal standard, verify halal compliance and enforce the performance of halal supply chains. Whether blockchain technology has the capability to replace halal certification by HCBs will depend on the blockchain technology solution itself, the adoption by brand owners and the Shariah compliance.

The Value of Blockchain Technology in Halal Certification

Blockchain technology provides a digital public ledger containing stringed data blocks with information, similar to our DNA. Through blockchain technology a halal network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. It is not stored centrally but distributed on many servers throughout the world as cryptographic proof.

Blockchain removes the need for a trusted third party to ensure an independent assessment of the integrity of a product or its network, as the longest chain serves as proof of the sequence of events witnessed. This technology could enforce end-to-end halal assurance and alignment based on specific halal market requirements, supported by automated smart contracts in its process execution and control.

A halal blockchain could provide full transparency of all halal supply chain transactions that have ever been executed. The blockchain has complete information about the addresses and their supply chain path right from source to the point of consumer purchase. Blockchains inject trust into a halal supply chain and value chain of a brand owner and the brand owner would be better able to guarantee halal integrity. They could also be integrated into wider sustainability and corporate responsibility systems to extend the brand market beyond Muslim consumers.

Today the halal certification process is a manual paper-based process, where the documentation held with the HCB is by definition outdated (although updated with the HCB twice a year).

The halal certification process could easily be replaced with a blockchain environment ensuring the halal assurance system is always up to date for blockchain participants including the HCB. Furthermore, introducing a new production process, new product variance, supplier halal certificate validity or a new or change of supplier could all be easily and automatically verified for compliance through blockchain technology.

In the event of a halal issue where the halal reputation of a brand is at risk, blockchain technology could be of assistance in providing transparency, to immediately validate an issue and take action quickly when needed to isolate and solve the issue or crisis. As various halal crises have shown, time is of the essence in limiting halal reputation damage for companies. Therefore blockchain technology would allow for more effective risk and reputation management for brand owners.

Islamic Religious Law (Shariah)

Halal assurance is essential for Muslims who according to the Holy Quran need to consume products that are halal and wholesome. The Muslim world is the key stakeholder and labelling something as halal or haram, is the absolute right of Shariah. Halal certification not only requires Shariah knowledge but also the act as witness, passing of a decision and compliance control of the company.

Industrial supply chains are complex, involving Muslim and non-Muslim countries with different halal eco-systems that are not always well regulated and halal assurance cannot depend on the heart and conscience of a few Muslims involved.

Many ingredients are imported from non-Muslim countries. Meat is essentially haram and cannot be consumed without a Shariah method of slaughtering. For products where there is a possibility that ingredients are haram, including but not limited to meat, it is essential to obtain halal certification. For consumer products halal certification is essential not only for food but also for cosmetics and pharmaceuticals, as it protects Muslims from consuming haram and impure things and avoids baseless doubts, hardship and difficulty when consuming halal on day-to-day basis.

Key activities undertaken by HCBs are providing (1) information; (2) testimony; (3) judgement or decree; (4) authority; and (5) general dealings and transactions.

Providing information about the halal and haram must be done by two competent Muslims. For testimony and witness all schools of Islamic thought require this to be done by a Muslim, mature, of sound mind, just and a free person. For a judge this needs to be a Muslim, mature, sound of mind, just, free person, physically healthy, secure from slander, have the absolute power to issue a decree and not deaf-dumb or blind. For the supervision of Muslim affairs it has to be a competent Muslim. For general dealings and transactions this needs to be a reliable and proficient person not necessary a Muslim. 

Conclusion

From a technology and brand owner point of view, blockchain technology could replace the role of halal certification. However, halal certification not only requires Shariah knowledge but also the act as witness, passing of a decision and compliance control of the company. From Shariah there are stringent requirements regarding the activities undertaken by HCBs in providing information, testimony, judgement or decree and authority, which cannot be blindly automated. Therefore replacing the role of the HCB by blockchain technology may not be possible from the Shariah point of view. On the other hand blockchain technology could make it easier for halal industries by making halal certification less difficult for them and in the event of a halal issue allows more effective halal crisis management and support from the HCB.

Halal blockchain technology could certainly assist HCBs in process improvements for new applications for halal certification, compliance control of company, adjustments and renewals, and support a future migration from product to supply chain certification.

Unlike quality management or financial systems, the halal assurance system is often manual. This is a high risk for effective management of halal assurance for brand owners as well as HCBs. Using blockchain technology could integrate halal management systems for companies and even make them part of a wider mainstream sustainability certification process extending beyond the Muslim market.

To address issues of cost, risk and efficiency HCBs should embrace halal blockchain initiatives together with the halal industry and be part of halal blockchains in order to make halal certification more efficient, provide better control of complex halal supply chains, allow migration from product to supply chain certification and better support the halal industry in case of a halal issue and crises going into the future.

Further research in blockchain technology for the use in halal certification by HCBs is highly recommended, as this technology makes it possible to migrate halal certification towards supply chains and value chains, incorporating important Islamic values in areas such as sustainability, corporate responsibility, animal welfare, Islamic finance, takaful, etc.

* Marco Tieman is the CEO of LBB International, an international supply chain strategy consultancy and research firm specialised in halal purchasing, production, supply chain management, and risk & reputation management.

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Category: Asia, Blockchain, Europe, Halal economy, Halal Integrity, Halal Trade, Middle East & Africa, Oceania, Opinion, Research, Shariah Issues, The Americas

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