Abstract

Purpose: This study aims to explore how smart contract (SC) technology can be integrated into the Islamic Banking (IB) system to improve its overall functionality, particularly in terms of operational efficiency and adherence to Sharīʿah principles. Method: This paper has used design science research method in order to produce an artifact of Islamic smart contract. Results: The study argues that traditional paper-based Islamic participation contracts (Mushārakah) can be digitized into blockchain-based smart contracts for greater efficiency. The matrix synthesizes elements of Islamic contracts and blockchain technology into sixteen constructs, combining the principles of Islamic banking (parties, offer and acceptance, subject matter, and profit/loss sharing) with those of blockchain technology (transparency, immutability, security, and consensus). This integration offers new insights into building core banking structures on blockchain and Islamic banking principles to enhance efficiency, financial inclusion, and institutional legitimacy. Key findings indicate that Islamic smart contracts (ISC) save costs and time while improving efficiency and financial inclusion. However, challenges include Sharīʿah compliance, technological complexity, regulatory fragmentation, and scalability issues.

Keywords

Islamic Contract; Smart Contract; Institutional theory; Design Science Research Method; Financial Inclusion.