Indonesian Islamic Banking and Finance: Responding to Digital Disruption Through Maqosid Integration and Product Innovation

Abstract

Indonesian Islamic banking and finance face major challenges amid digital disruption driven by fintech, blockchain, open banking, and crypto assets. These rapid developments create opportunities for financial inclusion and product innovation but also introduce risks of sharia non-compliance, weak regulation, and declining public trust. This study explores Islamic banking strategies in responding to these challenges through the integration of maqasid al-syariah and product innovation, while recommending the renewal of OJK regulations and DSN-MUI fatwas. Using a qualitative approach with SWOT analysis on academic literature, regulatory reports, and sharia fatwas, this research identifies that the main strength of Islamic banking lies in its sharia legitimacy and support from the Muslim community. However, weaknesses persist in low sharia digital literacy and regulatory lag. Opportunities arise from blockchain technology, digital payments, and hybrid instruments like digital sukuk, whereas threats emerge from conventional fintech competition and sharia reputation risks. Integrating maqasid al-syariah strengthens digital product innovation through principles of property protection (hifz al-mal), intellectual protection (?if? al-aql), and life protection (?if? al-nafs). The findings highlight the need for maqa?id-based, technology-adaptive regulations and responsive sharia fatwas to ensure compliance and innovation. Consequently, Indonesian Islamic banking can sustain growth, enhance competitiveness, and strategically navigate the evolving digital landscape