Enhancing trust through digital Islamic finance and blockchain technology

Purpose This paper aims to provide a reflective discussion on the different avenues of blockchain application in Islamic finance in promoting trust and transparency for increased accountability between parties involved in the delivery of Sharīʿah-compliant products and services. Design/methodology/a...

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Bibliographic Details
Published in:Qualitative research in financial markets 2021-06, Vol.13 (3), p.328-341
Main Author: Chong, Felicia Hui Ling
Format: Article
Language:English
Subjects:
Bank technology
Blockchain
Business models
Digital currencies
Digital economy
Financial institutions
Financial services
Innovations
Interoperability
Islamic financing
Peer to peer computing
Social networks
Startups
Trust
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Summary:Purpose This paper aims to provide a reflective discussion on the different avenues of blockchain application in Islamic finance in promoting trust and transparency for increased accountability between parties involved in the delivery of Sharīʿah-compliant products and services. Design/methodology/approach This paper discusses on blockchain benefits in Islamic finance while providing an illustration with smart Sukuk. Having identified the advantages of the development of Islamic financial technology (i-FinTech), this study ends by debating a couple of challenges (computational codification of Sharīʿah principles and environmental impact) that have to be addressed to promote the development of a real sustainable Islamic FinTech. Findings This paper also identifies two challenges in using blockchain in i-Fintech. The first challenge refers to the extent to which Sharīʿah principles can be computationally encoded. Blockchain makes public all transactions that ease Sharīʿah compliance checks and determine if these transactions are Islamic in nature but this check can be done only after their operation. The second challenge is related to the algorithmic protocol used to validate smart contracts (including smart Sukuk). This situation calls into question the principles of Maqasid al-Sharīʿah according to which transactions should not harm society. Originality/value In the current debates related to the development of Islamic FinTech, this paper also identifies two challenges in using blockchain in i-Fintech.
ISSN:1755-4179
1755-4187
DOI:10.1108/QRFM-05-2020-0076