A Proposed Framework for Sharia-Compliant Cross-Border Transactions Using Blockchain and Smart Contracts in Indonesia

Abstract

This study aims to develop a hybrid Sharia governance framework for blockchain-enabled cross-border Islamic financial transactions in Indonesia. Specifically, the study seeks to address persistent operational inefficiencies, compliance ambiguities, and governance challenges associated with conventional cross-border Islamic finance by integrating blockchain technology, smart contracts, and institutional Sharia oversight. This study adopts a conceptual research design underpinned by a pragmatist research philosophy and an abductive research approach. The proposed framework was developed through a systematic synthesis of secondary data from peer-reviewed academic literature, regulatory documents, industry reports, and technical documentation on Islamic finance, blockchain technology, smart contracts, and financial regulation. A thematic analysis was employed to identify key challenges, governance requirements, and technological capabilities relevant to blockchain-enabled Islamic finance. The findings suggest that blockchain technology can substantially improve the efficiency, transparency, and security of cross-border Islamic financial transactions by reducing intermediaries, automating contractual execution, and creating immutable transaction records. However, the study also reveals that technological automation alone is insufficient to ensure continuous Sharia compliance because smart contracts cannot fully accommodate jurisprudential interpretation and contextual judgement. Consequently, the study proposes a Hybrid Sharia Governance Model integrating on-chain automation with off-chain oversight involving Sharia scholars, technical auditors, legal experts, and regulatory authorities. The framework further operationalizes a cross-border Mudarabah smart contract workflow tailored to Indonesia's legal and institutional environment. This study contributes to the emerging Islamic FinTech literature by proposing one of the first context-specific governance frameworks integrating technological, regulatory, and Sharia dimensions within a single operational architecture for Indonesia. The study further advances the hybrid governance perspective by demonstrating that technological trust and institutional trust should function as complementary mechanisms in blockchain-based Islamic finance.