Modeling a mudaraba smart contract

Nick Doiron
4 min readMay 11, 2018


In March I started studying toward a certificate in Islamic Microfinance. As I’ve discussed earlier on Medium, Islamic Finance uses alternative financial structures to avoid charging interest, reject speculative or unfair contracts, and audit its investments to ensure no income from non-halal/haraam business.

Last summer I wrote about how Bitcoin and other cryptocurrencies could potentially empower Islamic finance and microcredit loans, and it’s one of my more popular posts. Without interest income, Islamic banks make money and compete on fees, which could be reduced and made available via low-fee, automated systems.
Smart contracts could potentially make that happen, but millions of dollars have been lost to code exploits or wallets terminated by unauthorized users. Privately I had been sketching out designs for a language or IDE which would divide your code into classes of users, but I didn’t have the necessary background knowledge on compilers.

2020 Update

I made an eBook:
Flint continues to be developed, so much of my code as written here is outdated.

Enter Flint

In May 2018 the Ethereum Foundation gave grants to several promising projects, including $10k to Flint language for smart contracts. Flint restricts users and mutating functions on a language level, and its compiler is written in Swift. You can read more about it here:

To explore the language, I decided to represent a mudaraba (a common contract from Islamic finance and microfinance) in Flint. Please consider this work a student project, and not official crypto / investment / Islamic finance advice.

Basics of Mudaraba

A mudaraba is a type of musharaka (profit-sharing contract) which provides capital to a business. The lender and business owner both invest in the success of the business:

  • If the investment loses money, the loss is split proportionally to the initial investment. It’s easy to remember by thinking what would happen in a 100% loss.
  • If the investment is profitable, those profits are split according to an agreed ratio. Lenders will incentivize the business owner, and compete with each other, by offering a greater share of profits. For example, a 80–20 partnership may agree to split profits 70–30. In any case, the success of the investment depends on reliable accounting, which typically involves more overhead and complexity (potentially another crypto solution?).
  • Unlike other types of musharaka, a mudaraba lender is typically a “silent partner” and not deeply involved in business decisions.
  • There are additional rules about adjusting the profit ratio and mutual decisions to end the contract, but I don’t want to code everything at once. For this example, we have a fixed profit ratio and either side can end the contract at any time.

Initial structure

There are contract instance variables, and blocks which contain multiple functions.

What anyone can do

Initializing a contract happens in the (any) block, because no bank or business address has been set yet. An @ payable function is called when money is paid in, in case you have the smart contract reacting to that.

I debated about when the bank/business profit share should be set. At init, neither side has invested funds, but they also want to make sure it’s a trustable contract.

  • if the owner does not invest satisfactory funds or takes time to invest for some reason, the bank can delay calling start() of the contract, or cancel().
  • if the bank does not set the promised profit ratio, or invest satisfactory funds, the owner can cancel() or not move funds into the contract

What business owners can do

I want to allow multiple payments into the investment wallet, but the owner shouldn’t be allowed to change the initial investment after the contract has started. Cryptocurrencies don’t have an option to reject or return-to-sender payments, so in a more resilient contract, maybe this balance could be stored in a variable, or there could be a reclaim function.

What banks can do

I’ve created a separate function name investFromBank to avoid conflict with the investFromBusiness function. I’ve also prevented the bank from changing its initial investment.

The contract closing function

This is the calculation which matters most; canceling or closing the contract with distributed profits. Here I am relying on code in the “future” directory of Flint, so don’t depend on it.

In event of the contract closing before it started, I direct to return initial investments.

Whenever the contract is closed there would be gas and transaction fees, but I believe that the bank is in the right to charge the client for these fees; in Islamic finance this is permissible even in Qard al-Hassan benevolent loans.

Compiling the contract

Does any of this work yet? The Flint language repo comes with a Dockerfile where you can start compiling contracts to Ethereum-friendly bytecode. By adding and subtracting pieces, and referring to future docs, I corrected the code which you currently see here.

Currently I cannot get “send” into compiling code, and that might be a good thing — I would like to see a more specific keyword for emptying the account. I’m not sure how to check the current balance without recording it in an instance variable (Solidity’s deprecated this.balance and newer address-casting-then-balance methods didn’t work). Also I didn’t get a chance to see how the percentage calculation works.

I’m excited to continue following this project in the future!