• Muhammad Izzul Syahmi Zulkepli Mr
  • Mohammad Taqiuddin Mohamad Academy of Islamic Studies, University of Malaya
  • Saaidal Razalli Azzuhri Faculty of Computer Science and Information Technology University of Malaya




Distributed Ledger, Iḥsān, Industrial Revolution 4.0, Islamic Financial Institutions, Shariah Compliance


A blockchain-based smart contract is a computer script, stored in the blockchain network and enforced automatically based on predetermined terms, decentralised verification as well as fully accessible real-time records to all blockchain users. Smart contract innovation, with a high level of transparency and a lower risk of operational errors, offers a novel approach for more effectively implementing Shariah contracts in Islamic financial institutions. However, the immutable smart contract principle, which disallows the amendment or deletion of the code deployed in the blockchain, appears incompatible with the iḥsān criterion implemented in Islamic financial institutions’ product offerings that allow operations and terms adjustment under certain conditions, including payment rescheduling and contract restructuring facilities in financing products. This study aims to look into the concept of blockchain-based smart contracts, as well as issue related to immutable smart contract and viable solutions that align with Shariah and Islamic banking operations. The study utilised the library research to achieve the objective by referring to related literature. The qualitative data were then descriptively analysed using the conceptual content analysis method. The study’s results found that, in order to comply with the characteristics of iḥsān to implement Shariah contracts using blockchain-based smart contract technology, the programmer should first write flexible code rather than fixed code, and the upgradable proxy contract should be well applied in the creation of the smart contract code.


Download data is not yet available.

Author Biography

Mohammad Taqiuddin Mohamad, Academy of Islamic Studies, University of Malaya

Department of Shariah and Economics

Academy of Islamic Studies

University of Malaya

Kuala Lumpur, 50603 Malaysia


‘Abd Al-Sattar Abu Ghuddah, Walid ibn Hadi, Sultan Al-Hashimi & Muhammad Ahmin. (2016), Asasiyyat Al-Mu’amalat Al-Maliyah wa al- Masrafiyah Al-Islamiyyah. Beirut, Dar Ibn Hazm.

Abdul Muneem, Nor Fahimah & Abdul Karim Ali, (2020). Issues on Restructuring of Financing Facility in Malaysia Islamic Banks. Jurnal Syariah, 28(1), 105-126.

Ahmad Zakirullah, Fidlizan Muhammad, Mohd Yahya et al., (2020), Smart Contract: A Shariah Analysis, E Prosiding Shis X 2020, University of Malaya, Kuala Lumpur, 119-134.

Aishath Muneeza & Zakariya Mustapha. (2019). Blockchain and Its Shariah Compliant Structure. Halal Cryptocurrency Management. Cham, Palgrave Macmillan, 69-106.

Amir Husin Mohd Nor, Mohamad Zaharuddin Zakaria, Ahmad Zaki Salleh. (2019). Ractification of Shariah Non-Compliance Issues: Solutions and Its Implementation in Islamic Financial Institutions – with Specific Reference to Tawarruq-Based Products and Services. Graduate International Conference, Pascasarjana IAIN Bukit Tinggi, Sumatra Barat, 1-13.

Auwal Adam. (2018). Smart Sukuk Structure from Shari’ah Perspective: The Application of Mudarabah Smart Contract. E-Proceedings of the Global Conference on Islamic Economics and Finance 2018, Kuala Lumpur, 387-394.

Az Azrinudin, Abdo Ali Abdullah & Zamri Yusoff. (2018). Overview of Blockchain Implementation on Islamic Finance: Saadiqin Experience. 2018 Cyber Resilience Conference (CRC), 1-2.

Aznan Hasan, Muhammad Nasir, Mohd Faysal & Budeeman. (2018). Rescheduling and Restructuring of Islamic Financing Facilities: A Shari’ah Perspective. ISRA Research Paper No. 100, International Shari’ah Research Academy for Islamic Finance (ISRA), Kuala Lumpur, 63-64.

Bartoletti, Massimo & Livio Pompianu. (2017). An Empirical Analysis of Smart Contracts: Platforms, Applications, and Design Patterns. International Conference on Financial Cryptography and Data Security. Springer: Cham, 494-509.

Christian Catalini & Joshua. (2019). Some Simple Economics of the Blockchain. SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2874598.

Dhiaeddine Rejeb. (2021). Smart Contract’s Contributions to Mudaraba. Tazkia Islamic Finance and Business Review (TIFBR), 15(1), 1-18.

Dubai Islamic Economy Development Centre (DIEDC). (2018). Development Centre, Islamic Fintech Report 2018. available at: https://www.dinarstandard.com/wp-content/uploads/2018/12/Islamic-Fintech-Report-2018.pdf. (Accessed at 12 December 2022).

Eduardo, Mauro & Marly. (2019). Fintech: A Literature Review and Research Agenda. Electronic Commerce Research and Applications, 34, 1-21.

Farhana & Faridah. (2019) . Smart contract in Islamic Trade Finance. Contemporary Management and Science Issues, Singapore, Springer Publisher, 431-437.

Farrukh Habib. (2019). Smart Contracts for Islamic Financial Transaction. IFIKR DIGEST 11, IFIKR, Kuala Lumpur, 10-15.

Gaving Zheng, Longxiang Gao, Liqun Huang & Jian Guan. (2021). Upgradable Contract. Ethereum Smart Contract Development in Solidity, Springer,197-213.

Hussām Al-Dīn ibn Musa. (2019). ,Yas’alūnaka ‘an al-Mu’āmalah al-Māliyah,” in Mu‘āmalāh al-Bunuk al-Islāmiyyah, Al-Quds, Al-Maktabah al-‘Ilmiyyah.

Lovodica Marchesi, Michele Marchesi, Livio Pompianu. (2020). Security Checklists for Ethereum Smart Contract Development: Patterns and Best Practices,” arXiv preprint arXiv:2008.04761, 1-13.

Mahbubi Ali & Rusni Hassan. (2020). Survey on Shari’ah Non-Compliant Events in Islamic Banks in the Practice of Tawarruq Financing in Malaysia. ISRA International Journal of Islamic Finance 12(2), 151-169.

Massimo & Livio Pompianu. (2017). An Empirical Analysis of Smart Contracts: Platforms, Applications, and Design Patterns. In International Conference on Financial Cryptography and Data Security, Springer, Cham, 494-509.

Maximilian & Uwe. (2018). Design Patterns for Smart Contracts in the Ethereum Ecosystem,” 2018 IEEE Confs on Internet of Things, Green Computing and Communications, Cyber, Physical and Social Computing, Smart Data, Blockchain, Computer and Information Technology, Congress on Cybermatics, Canada, 1513-1520.

Mohamad Akram Laldin & Hafas Furqani. (2019). Fintech and Islamic Finance: Setting the Shariah Parameters. In Fintech in Islamic Finance: Theory and Practice, Routledge: New York, 112-119.

Mohamed Cherif El Amri, Mustafa Omar Mohammed, & Ruslan Sabirzyanov. (2021). The Potential of Smart Contracts for Murabahah Home Financing: Towards an Integrated Model. In Fintech, Digital Currency and the Future of Islamic Finance, Palgrave Macmillan, Cham, 49-76.

Muhammad Faruq, Omar Bamahiz, Aishath Muneeza et al.(2020). Application of Tawarruq in Islamic Banking in Malaysia: Towards Smart Tawarruq. International Journal of Management and Applied Research (IJMAR), 7(2), 100-113.

Muhd Aiman & Muhammad Najib. (2022). The Consequences of Improper Sequence (Tartib) in Tawarruq Financing Contract. International Journal of Advanced Research in Economics and Finance 4(1), 157-165.

Munzir Qahf & Muhammad Sharīf, “Al-‘Uqūd Al-Zakiyyah”. (2019). The 39th Session of International Islamic Fiqh Academy, Dubai, United Arab Emirates, 1-40.

Nasrun Mohamad & Asmak Ab. Rahman. (2014). Analysis of Tawarruq Based Financing: From Shariah Risk Management Perspective. In Islamic Economic Banking and Finance: Concepts and Critical Issues, Kuala Lumpur, Pearson Malaysia.

Nick Szabo. (1997). Formalizing and Securing relationships on Public Networks. Uic Journals 2(9). https://journals.uic.edu/ojs/index.php/fm/article/view/548/469#Conclusion.

Nicola, Massimo & Tiziana. (2017). A Survey of Attacks on Ethereum Smart Contracts. In International Conference on Principles of Security and Trust, Springer, Berlin, Heidelberg, 164-186.

Nur Husna Zakaria, Sherin Kunhibava, Md. Ershadul Karim, Abu Bakar Munir & Raphael Kok, Thing Ming Sen & Ridoan Karim. (2018). Malaysian Blockchain Regulatory Report, University of Malaya, Kuala Lumpur.

Peter Eza, Tochukwu & Chinedu. (2017). A Triplicate Smart Contract Model using Blockchain Technology, Circulation. In Computer Science-Special Issue. 1-10.

Qi Yang, Xiao Zeng, Yu Zhang et al..(2019). New Loan System Based on Smart Contract. Proceeding on Computer and Communications Security, Auckland, 1-6.

Quṭub Muṣṭafā Sānū. (2019). Al-‘Uqūd Al-Zakiyyah Fi Ḍau’I Al-‘Uṣul Wa Al-Maqāṣid Wa Al-Mālāt Ru’yah Takhlīliyyah. The 39th Session of International Islamic Fiqh Academy, Dubai, United Arab Emirates, 7-54.

Richard Marc, Berthe Lambert & Nida Khan. (2017). Blockchain Technology – Arsenal for A Shariah-Compliant Financial System?. Journal of Business and Economics, 1-11.

Romulo Luciano. (2019). The Hazards of Misusing the Smart Contract: An AHP Approach to Its Risk,” JIS 10(1), https://www.scirp.org/html/2-7800557_90112.htm.

Shahbaz Alam & Hina Noor. (2020). Mined and Non-Mined Crypto Currencies: A Critical Analysis from Shariah Perspective. International Journal of Innovative Science and Research Technology 5(3), 429-437.

Sirajulhaq & Marifatulhaq. (2019). Current Trends and Future Impacts of Fintech in Islamic Finance. In Fintech in Islamic Finance: Theory and Practice, Routledge, New York, 326-356.

Siti Mazlita Yamaludin. (2014). Recovery Process of Murabahah Financing in Islamic Financial institutions in Malaysia. Master’s Dissertation, International Islamic University Malaysia, Malaysia.

Siti Rohaya, Zam Zuriyati, Juliana, Farhana & Norhayati. (2018). Artificial Intelligence, Smart Contract and Islamic Finance. Asian Social Journal 14(2), 145-154.

Son Nguyen, Peggy & Yuquan. (2020). Risk Identification and Modeling for Blockchain-Enabled Container Shipping. International Journal of Physical Distribution and Logistics Management, 1-23.

Sumaia Ali, (2022), Al-‘Uqūd Al-Zakiyyah: Ḥukmuhā Wa Ḍawābiṭuhā Al-Fiqhiyyah. Journal of Islamic Sciences, 5(2), 91-109.

Tianyu Feng, Xiao Yu, Yueting Chai & Yi Liu. (2019). Smart Contract Model for Complex Reality Transaction. International Journal of Crowd Science 3(2), 194-197.

Van Cuong Bui, Sheng Wen, Jiangshan Yu et al., (2021). Evaluating Upgradable Smart Contract. 2021 IEEE International Conference on Blockchain (Blockchain), Melbourne, Australia, 252-256.

Zibin Zheng, Shaoan Xie, Hong-Ning Dai, Weili Chen, Xiangping Chen, Jian Weng & Muhammad Imran. (2020). An Overview on Smart Contracts: Challenges, Advances and Platforms. In Future Generation Computer Systems 105, 475-491.




How to Cite

Zulkepli, M. I. S., Mohamad, M. T. ., & Azzuhri, S. R. . (2023). LEVERAGING BLOCKCHAIN-BASED SMART CONTRACT IN ISLAMIC FINANCIAL INSTITUTIONS: ISSUE AND RELEVANT SOLUTION. International Journal of Islamic Economics and Finance Research, 6(1), 18-28. https://doi.org/10.53840/ijiefer96