The Role of Blockchain in Islamic Finance and Zakat Payments

Paying the obligatory alms, zakat, is not merely a matter of goodwill but a religious duty with a broader societal dimension. It is not just an act of charity; zakat is designed to foster prosperity and social harmony.

Just as churches today accept electronic card payments or QR codes, modern payment methods are also making inroads into Islam. The difference, however, is fundamental—while Christianity prioritizes the donor’s intent, known only to themselves, zakat in Islam must adhere to a strict set of rules under sharia.

Islam lacks a central authority to dictate a singular interpretation of zakat obligations. This diversity of interpretations complicates adherence to the duty, as there is no universal method of compliance. This is where blockchain technology offers a potential solution. By enabling the transparent recording of all transactions, blockchain upholds one of the fundamental principles of Islamic finance: transparency.

Blockchain facilitates financial services through decentralised finance (DeFi), a system without a central authority, theoretically making it an ideal tool for implementing Islamic finance principles, including zakat payments.

Who Must Pay Zakat al-Mal in 2025?

All Muslims must pay Zakat al-Fitr, which validates the completion of Ramadan fasting. In France, this amount has been set at €9 per person. However, this is not the only obligation. If a Muslim owns movable assets, they must also pay Zakat al-Mal. But how does one determine whether they owe this obligation?

The threshold (Nisab) for zakat is based on gold prices. Anyone possessing more than 85 grams of gold must contribute 2.5% of their wealth. Due to the recent increase in gold prices, the Nisab for 2025 is set at €4,754, a substantial amount. Some Islamic scholars, however, advocate for a calculation based on silver prices. The silver Nisab is 595 grams, equating to €422 for 2025. This lower threshold means that a significant portion of European Muslims would be obligated to pay zakat.

The existence of two different calculation methods illustrates a fundamental issue: which set of rules should be considered binding? This question is just one of many ongoing debates among Islamic scholars regarding zakat.

Consensus and Contention in Islamic Finance

Despite differences in interpretation, there is broad consensus in Islam on core principles. All schools of thought agree that zakat is one of the pillars of Islam. They also concur that Islamic finance must be built on trust, integrity, and transparency. These values underpin three key financial rules in Islam. A Muslim must avoid speculative, uncertain, or high-risk investments. Interest (riba) is strictly prohibited, as profiting from money lending is considered unproductive. The risks and profits from potential investments must be fairly distributed among all parties involved.

Applying these principles in practice requires expertise in Islamic jurisprudence. The diversity of scholars naturally leads to differences in interpretation. This can be seen in the calculation of zakat itself. In Sunni Islam, the Hanafi school excludes investments from zakat calculations, whereas the Shafi‘i school includes them. More significant disagreements exist regarding the entity responsible for distributing zakat. The Hanafi school supports individual distribution. The Maliki school prefers a localised system of zakat collection and distribution. The Hanbali school advocates for state-administered zakat institutions.

These nuances complicate zakat obligations for the average believer, particularly for practicing Muslims who do not adhere to a specific school of jurisprudence. For them, decentralised finance (DeFi) presents an attractive alternative, allowing zakat to be automated, transparent, and impartial—free from institutional and interpretational disputes.

How DeFi Can Simplify Zakat Payments

The greatest challenge in zakat distribution lies in the institutions responsible for managing and redistributing funds. This presents two key issues. Every Muslim has the right to verify how their zakat contributions are used, but traditional systems often lack transparency. Additionally, the legitimacy of a zakat-distributing entity depends not only on its trustworthiness but also on whether its operations adhere to Islamic law, a complex issue given the diversity of legal interpretations.

DeFi addresses both problems effectively. Since blockchain functions as a vast public ledger, it enables real-time tracking of transactions and their ultimate use, ensuring compliance with Islam’s strict transparency requirements. Another major advantage is the ability to encode sharia principles directly into the system. Algorithms can be designed to align with the requirements of specific schools of Islamic jurisprudence. A believer can simply select an algorithm corresponding to their interpretation of Islam.

These algorithms can then be certified by esteemed institutions such as the Islamic Financial Services Board (IFSB) or the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). More institutions could be incorporated to ensure credibility. DeFi’s inherent flexibility makes it particularly well-suited to meet such varied requirements.

Zakat and DeFi: A Path to a More Equitable Society?

Beyond its religious significance, zakat serves an essential socio-economic function, fostering collective prosperity. One of the key drivers of economic development is access to financial services, particularly fast and efficient payment solutions. The velocity of money circulation is crucial to economic growth.

Integrating zakat payments into DeFi platforms could extend modern financial services to underprivileged Muslim communities that currently lack access to banking. In Nigeria, which has one of Africa’s largest Muslim populations, only 47.6 million of 106 million adults had a bank account in 2020—just 45% of the population. The adoption of DeFi-based zakat solutions could offer these individuals access to financial tools fully aligned with Islamic law, providing a gateway to broader economic participation.

By merging blockchain technology with Islamic finance, DeFi could revolutionize zakat administration, ensuring compliance, transparency, and efficiency while broadening financial inclusion for millions of Muslims worldwide.

Statement

The intersection of Islamic finance and blockchain technology presents a transformative potential for zakat payments, balancing religious obligations with modern tools. Transparency, a core tenet of Islamic finance, is supported by blockchain's immutable ledger, addressing disputes over zakat distribution and compliance with sharia. Decentralised finance (DeFi) platforms can automate and streamline zakat payments, ensuring equitable distribution without reliance on centralised authorities. As Islamic financial assets are projected to surpass $7.5 trillion by 2028, integrating DeFi solutions could enhance financial inclusion, particularly in underbanked Muslim communities. In short, blockchain and DeFi could redefine zakat, making it more transparent and accessible.

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