Implementing the Blockchain Technology in Islamic Financial Industry: Opportunities and Challenges

Document Type : Research Paper

Authors

1 Senior Lecturer, University Kuala Lumpur Business School, Malaysia.

2 Lecturer, Emirates Institute for Banking and Financial Studies, United Arab Emirates.

3 Assistant Professor, Social Sciences, Faculty of Islamic Studies, University of Ankara, Turkey.

Abstract

Blockchain technology is rapidly gaining the attention of financial institutions around the world, especially among decision makers in Islamic financial institutions who are planning to apply this innovative technology into their institutions activities which could be an upright solution for their issues and challenges. This paper contributes to the emerging literature on financial technology by discussing some of the innovative applications of blockchain in Islamic financial institutions. In addition, this paper sheds light on the main opportunities and challenges facing application of Blockchain Technology in the Islamic financial industry and highlight the way forward to address these issues. Relying on the previous literature and analysis; this paper confirms the enormous opportunities for utilizing blockchain technology in various Islamic financial applications such as Waqf, Zakat and Sukuk. On the other hand, the main challenges towards implementing blockchain in this industry are the complexity of Islamic finance products added to the opacity of its application which end up with unclear regulations and lack of standards.

Keywords


Abojeib, M., & Habib, F. (2019). Blockchain for Islamic social responsibility institutions. In Fintech as a Disruptive Technology for Financial Institutions (pp. 221-240). IGI Global.
Alaeddin, O., & Altounjy, R. (2018). Trust, technology awareness and satisfaction effect into the intention to use cryptocurrency among generation Z in Malaysia. International Journal of Engineering & Technology, 7(4.27), 8-10.
Alzubaidi, I. B., & Abdullah, A. (2017). Developing a digital currency from an Islamic perspective: case of blockchain technology. International Business Research, 10(11), 79-87.
Bakar, N. A., & Rosbi, S. (2018). Robust framework diagnostics of Blockchain for bitcoin transaction system: A technical analysis from Islamic Financial Technology (i-FinTech) perspective. International Journal of Business and Management, 2(3), 22-29.
Bello, G., & Perez, A. J. (2020). On the Application of Financial Security Standards in Blockchain Platforms. In Blockchain Cybersecurity, Trust and Privacy (pp. 247-267). Springer, Cham.
Cambridge Institutive of Islamic finance. (2018). Global Islamic Finance Report 2018.
Cong, L. W., & He, Z. (2019). Blockchain disruption and smart contracts. The Review of Financial Studies, 32(5), 1754-1797.
Dickerson, T., Gazzillo, P., Herlihy, M., & Koskinen, E. (2019). Adding concurrency to smart contracts. Distributed Computing, 1-17.
Elasrag, H. (2019). Blockchains for Islamic finance: Obstacles & Challenges. Munich Personal RePEc Archive, (03), 1–39.
Fanning, K., & Centers, D. P. (2016). Blockchain and its coming impact on financial services. Journal of Corporate Accounting & Finance, 27(5), 53-57.
Gazali, H. M., & Ismail, C. M. H. C. (2019). A conceptual framework for cash Waqf with blockchain in financing education for the Islamic religious school in Malaysia. AL-Itqan: Journal of Islamic Sciences and Comparative Studies, 3(1), 73-88.
Lacasse, R. M., Lambert, B., & Nida, K. H. A. N. (2018). Islamic Banking-Towards a Blockchain Monitoring Process. Revue de Gestion et d’Économie, 6(1 & 2), 33-46.
Lin, I. C., & Liao, T. C. (2017). A survey of blockchain security issues and challenges. IJ Network Security, 19(5), 653-659.
Madisetti, V., & Bahga, A. (2019). U.S. Patent No. 10,394,845. Washington, DC: U.S. Patent and Trademark Office.
Mohamed, H., & Ali, H. (2018). Blockchain, Fintech, and Islamic finance: Building the future in the new Islamic digital economy. Walter de Gruyter GmbH & Co KG.
Muneeza, A., Arshad, N. A., & Arifin, A. T. (2018). The application of blockchain technology in crowdfunding: towards financial inclusion via technology. International journal of management and applied research, 5(2), 82-98.
Nienhaus, V. (2019). Blockchain technologies and the prospects of smart contracts in Islamic finance. Fintech in Islamic Finance, 183.
Rabbani, M. R., Khan, S., & Thalassinos, E. I. (2020). FinTech, blockchain and Islamic finance: an extensive literature review, European Research Studies Journal, vol. 0(1), pages 348-367.
Rabbani, M. R., Khan, S., & Thalassinos, E. I. (2020). FinTech, blockchain and Islamic finance: an extensive literature review.
Risius, M., & Spohrer, K. (2017). A blockchain research framework. Business & Information Systems Engineering, 59(6), 385-409.
S&P Global Rating. (2020). Islamic finance Outlook 2020 edition.
Salleh, W. N. A. W. M., Rasid, S. Z. A., & Basiruddin, R. (2019). Towards Transforming Zakat Collection and Distribution Roles Using Digital Wallet in Support of Social Justice and Social Financing. Open International Journal of Informatics (OIJI), 7(2), 95-103.
Schmidt, C. G., & Wagner, S. M. (2019). Blockchain and supply chain relations: A transaction cost theory perspective. Journal of Purchasing and Supply Management, 25(4), 100552.
Tabachnick, B. G., Fidell, L. S., & Ullman, J. B. (2007). Using multivariate statistics (Vol. 5, pp. 481-498). Boston, MA: Pearson.
Xu, J. J. (2016). Are blockchains immune to all malicious attacks? Financial Innovation, 2(1), 1-9.