Reconceptualising Smart Contracts As Shariah and Legally Compliant Self-Help for Credit Risk Management in Nigerian Islamic Financial Institutions
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Abstract
This study examines the Shariah and legal compliance of smart contracts as self-help mechanisms for credit risk management in Islamic financial institutions. The rapid growth of fintech has increased the use of smart contracts to reduce default rates, enforcement costs, and information asymmetry, yet their legal and Shariah status remains underexplored. Using a doctrinal and comparative approach, the research analyses the permissibility of contractual terms and self-help practices under Islamic law and Nigerian law. It also evaluates the enforceability of smart contracts in the absence of comprehensive electronic commerce legislation, with reference to the Evidence Act 2011 and the pending Electronic Commerce Bill 2009. The findings show that properly structured smart contracts are consistent with key Shariah principles, including transparency, certainty, proportionality, and necessity, and may function as regulated self-help mechanisms rather than unlawful extra-judicial sanctions. The study argues that smart contracts offer a defensible legal and Shariah-compliant framework for managing credit risk, provided that excessive automation, unlawful terms, and disproportionate enforcement are avoided. It concludes by recommending an integrated regulatory and Shariah governance framework to guide their responsible deployment in Islamic financial institutions.
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