Harnessing Digital Technologies for Sharia-Based Finance: Exploring Opportunities and Strategic Challenges in the Transformation of Islamic Financial Institutions

Abstract

This research aims to develop a conceptual framework for the digital transformation of Islamic financial institutions by integrating modern technologies such as fintech, blockchain, artificial intelligence (AI), and smart contracts into a financial system based on the principles of maqāṣid al-sharīʿah. The focus is on explaining how digital innovation can improve efficiency, financial inclusion, and sharia compliance without neglecting the values of justice ('adl), trust (trust), and benefit (maṣlaḥah). This study uses the Systematic Literature Review (SLR) method with PRISMA guidance on 131 internationally reputable scientific publications for the period 2020 to 2025 obtained from the Scopus database. The analysis was conducted using VOSviewer to map the interconnectedness of key themes such as fintech, Islamic finance, blockchain, and sharia compliance, as well as identify research gaps and future development directions. The results show that digitalization plays a significant role in strengthening operational efficiency and expanding Islamic financial inclusion. The application of AI and blockchain improves the accuracy of sharia compliance verification and transaction transparency. Innovations such as digital sukuk, sharia P2P financing, as well as zakat and digital waqf strengthen the socio-economic function of Islam. However, challenges such as low digital literacy, regulatory disharmonization, and cybersecurity risks still need to be addressed. The novelty of this research lies in the integration of the concept of embedded sharia compliance and smart fatwa system in the design of modern financial technology. This approach places sharia values as the main foundation of digital innovation, while offering a new direction for the development of an ethical, inclusive, and sustainable Islamic finance ecosystem.