Reimagining Islamic Finance for the Digital Asset Age

Islamic finance has always been a discipline in motion. From its formal codification in the 1970s through its rapid expansion across Southeast Asia and the Gulf, the field has shown a remarkable capacity to develop instruments that satisfy both the demands of modern capital markets and the constraints of Sharia law.

That capacity is now being tested by something genuinely new: the emergence of decentralised finance, digital assets, and programmable money.

The Core Tension

The tension is not simply technical. It goes to the heart of what Islamic finance is for. The prohibition on riba — broadly, on making money from money without productive economic activity — was designed to ensure that financial activity remained tethered to the real economy. It was a moral constraint as much as a legal one.

Decentralised finance, in many of its manifestations, appears to offer precisely the kind of return-without-risk that Islamic finance exists to prohibit. Yield farming, liquidity provision, automated market-making — these activities generate returns through mechanisms that have no obvious analogue in classical Islamic jurisprudence.

And yet. The scholars who have examined these instruments most carefully have reached more nuanced conclusions than the initial scepticism suggested.

Prof. Zainab Hassan is a Professor of Islamic Finance and a guest contributor to Imprint.