Application of a distributed verification in Islamic microfinance institutions: a sustainable model

Abstract The literature gap in microfinance paradox of double bottom line (financial performance vs. outreach) has always been an interesting area research. This paper proposes a theoretical model most suitable for Islamic Microfinance Institutions (MFIs) which enables MFIs’ to operate together with the existing financial models compliant Shariah Law. is based on distributed verification/decision-making process that might be realized (but not necessary) through blockchain. Among available verification techniques, blockchain technology attractive emerging computing paradigm due its decentralized, immutable, shared, and secure data structure characteristics. three significant propositions. First, sharing information will allow transparent network MFI operations, raise confidence donors resulting causal effect relatively lower profit rate charged by MFIs. Second, consensus mechanism enable risk-sharing, character finance; thus, MFIs without any collateral low-risk firms. Third, MFIs' long-lasting would solved. As practical implication this proposed model, impact cost investment lenders increase social welfare because no initial wealth requirement. credit rationing approach where can negative. No used when calculating creditworthiness borrower.