Smart Contracts in Islamic Financial Systems: Enforceability and Legal Challenges in GCC Jurisdictions

Abstract

The study examines the enforceability and legal challenges of smart contracts in Sharia-compliant finance with a focused case study of Gulf Cooperation Council (GCC) jurisdictions, including Saudi Arabia, the United Arab Emirates, Bahrain, Kuwait, Oman, and Qatar. The study adopts qualitative, doctrinal, and comparative as the main methods. Furthermore, the study examines national laws of selected countries on contracts, fintech regulation, Sharia regulations, and specific guidance, beside comparative perceptions from Malaysia and the United Kingdom. Regarding the findings of this study, it determines that while GCC countries have made distinguished development through electronic transaction laws and digital asset frameworks, significant legal ambiguity remains concerning contract establishment, liability allocation, jurisdiction, and dispute resolution for self-executing code. Thus, from a Sharia viewpoint, the study identifies main challenges resulting from the tension between automated implementation and principles such as the prohibition of illegal transactions, the requirement of contractual intent, equitable risk allocation, and the need for human interpretation through Sharia supervisory oversight. The study explores how fragmented regulatory approaches and lack of unified standards, particularly from AAOIFI, exacerbate cross-border enforceability risks for Islamic fintech products. Finally, the study concludes by recommending a hybrid governance model that integrates early Sharia review, legally binding off-chain documentation, and human-in-the-loop safeguards. It also emphasizes the need for specialized dispute resolution mechanisms and greater regional harmonization. Such modifications are vital to ensure that smart contracts can be effectively enforced within GCC Islamic financial systems while preserving Sharia compliance, legal certainty, and market confidence.