Regulating Digital Currencies in the EU: A Comparative Analysis with Islamic Finance Principles Under MiCA

Zahiduzzaman Zahid; Ruhul Amin; Ibrahim Khalil; Basharat Ali Khan Mohammed; Salman Arif

doi:10.59890/ijbmp.v3i3.42

Authors

Zahiduzzaman Zahid University of Cumberlands
Ruhul Amin Manarat International University
Ibrahim Khalil Khulna University of Engineering & Technology
Basharat Ali Khan Mohammed Campbellsville University
Salman Arif University of Punjab

DOI:

https://doi.org/10.59890/ijbmp.v3i3.42

Keywords:

MiCA Regulation, Islamic Finance, Shariah Compliance, Stablecoins, Decentralized Finance (DeFi), Digital Assets, Asset-Backed Tokens, Crypto Regulation, Ethical Finance, European Union, Mudarabah, Blockchain Governance, Islamic Fintech, Financial Regulation, Risk-Sharing

Abstract

This paper investigates the intersection of MiCA and Islamic finance by conducting a comparative regulatory analysis, focusing on core areas such as stablecoin structures, decentralized finance (DeFi), smart contracts, and ethical governance. It critically examines MiCA’s reserve and redemption frameworks for asset-referenced tokens (ARTs) and e-money tokens (EMTs) against Shariah mandates of asset-backing, risk-sharing, and prohibition of riba (interest) and gharar (excessive uncertainty). The analysis further explores the legal and ethical tensions between MiCA’s treatment of decentralized assets and Islamic jurisprudence, especially regarding profit-sharing models like Mudarabah and Musharakah. It highlights challenges Islamic fintechs operating within the EU face, including the lack of recognition for Shariah boards and faith-based audit systems under MiCA. The study concludes by proposing policy recommendations for greater inclusivity, including potential amendments to MiCA that accommodate ethical finance models and support Islamic digital financial innovation. The findings contribute to the global discourse on harmonizing digital asset regulation with diverse ethical and religious frameworks, offering valuable insights for regulators, scholars, and Islamic financial institutions

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