Nitin Gupta
3 min readFeb 9, 2021


Islamic Finance: The hidden world for blockchain to disrupt

What is Blockchain missing out on?

In one word, Islamic finance.

And the reason? Lack of awareness.

Islamic finance is a $2.5 trillion industry, expected to reach $3.5 trillion by 2024 but the inclusion of Blockchain in this industry has not seen the light of the day. Why?

Simply because the Islamic community has strict trade rules and regulations which need to be defined properly. More importantly, the Islamic community prioritizes ethics above everything which makes it even more challenging to introduce new technology in the existing framework, especially a technology like Blockchain which has the power to replace the existing mechanism.

In essence, to synergise Blockchain and the Islamic world, the following things should be kept in mind:

Understanding the terms of Islamic trade such as Murabaha and Sukuk transactions.

proper structuring of the trade flow through smart contracts and defining various financial services.

Ensuring the security of smart contracts through rigorous auditing and testing.

Let’s take the example of a few Islamic transactions:

Murabaha: A smart contract that can synthesize the returns based on any transactions with a cost-plus contract structure to facilitate a non-interest-bearing mortgaging is required to implement Murabaha transactions.

Takaful: the Islamic Finance version of an insurance pool, needs a well-defined smart contract as well.

Sukuk: Usually regarded as the Islamic version of a bond, Sukuk is a Shariah-compliant certificate that requires the validation by a Shariah expert even though a standardised, audited smart contract is used to issue them.

It is noteworthy to recognize here that all these applications are not just based on smart-contracts but the underlying Blockchain network. Every party is onboarded through a digital KYC and issued an ID on the Blockchain network which is used for authentication while at the same time, maintaining the privacy of the customer. Furthermore, the payment structure which completes the whole process is also possible due to the inclusion of Blockchain. Whether it is a stable coin representing a fiat or a cryptocurrency, the transfer takes place on top of a Blockchain network.

Above everything else, the Islamic community has a unique requirement which intrigues me personally. Rather than replacing the traditional system completely, the inclusion of any revolutionary technology in this sector is only as successful as its integration with the existing system. For instance, Even if smart contracts are used to extensively define the rules and regulations, internal and external Shariah experts are imperative.

Whether it is the prohibition of Riba(Interest-free solution for trade) or prohibition of Gharar(high uncertainty) and Maysir(gambling), every solution in the Islamic ecosystem requires reviewing and screening by the in-house Shariah experts.

Further, the introduction of advanced concepts like NFTs, stablecoins, and DeFi governance, give room for developing a holistic Islamic financial structure on Blockchain.

According to a religious edict (fatwas) issued by a Muslim scholar,

“The blockchain is not only a platform for bitcoin & cryptocurrency; it is a decentralized digital ledger technology to record anything of value whether it is currency or assets. Blockchain may be considered a boon to the Shariah requirements of transparency and disclosure. Blockchain can serve to enhance the notions of trust in exchange transactions and transfers. It can serve to enforce the principle of cash transactions in exchange for currency and commodities.”

All I can say from my experience is, Blockchain in the Islamic community is going to be the next big thing in 2021. Considering the fact that Islamic banks constitute almost 70% of the Islamic industry and central banks around the globe have started implementing Blockchain-based solutions, we might witness an unprecedented growth of Blockchain in 2021.

Would love to hear your views on the same. I am always open for a detailed discussion on Blockchain implementation.