Blockchain Technology - Arsenal for a Shariah-Compliant Financial Ecosystem

The authors’ first challenge is to decipher the complexity of Islamic Finance
despite the opacity of the sector. A second focal point is the agent’s agenda; in the Islamic
Finance industry, contributors mandate intermediaries (agents) to transfer their contributions
to social causes according to the Shariah; in principle, Islamic financial institutions must
create value for their stakeholders by offering Shariah-compliant products and services. An
underlying assumption of agency theory is that agents attempt to maximize their personal
welfare and compensation, but such behaviour may not always be in the best interests of other
stakeholders, and an analysis of the agent’s agenda can help explain how agents can fall off
the pedestal of altruism. Relationships between Islamic banks and three key stakeholders
(contributors, beneficiaries and regulators) are also explored via a complexity-aware
monitoring process. Contributors provide funds to an Islamic bank (agent), and in return, the
agent should be accountable to the contributors, but the form and degree of accountability can
vary depending on the organization’s mission. There are many unanswered questions
regarding the monitoring process. One objective of the article is to consider whether agents
act in the best interests of the stakeholders. Finally, the authors explore the following
question: Can blockchain technology and smart contracts support and enhance the
transparency feature, which is the core underlying principle of all transactions in the Islamic
Finance industry? A qualitative research framework was adopted because of the constraints of
the enigmatic, secretive Islamic Finance culture.