Shariah Finance Transformed: Digital Literacy and Inclusion to Combat Illegal Online Loan Traps

Abstract

Purposes - This research is to explore the role of Sharia financial transformation in addressing the pitfalls of illegal online loans through the enhancement of financial literacy and digital inclusion, with the research location being in Langsa City, Aceh. Sharia finance, with its distinct principles from conventional finance, is gaining popularity in predominantly Muslim countries. Illegal online loans, with their high interest rates and detrimental terms, pose a serious threat to Indonesian society, particularly in Langsa City. The lack of financial literacy and Sharia digital financial inclusion plays a key role in this issue.

Methods - The research methodology includes a combination of qualitative data analysis, involving surveys, interviews, literature reviews, and 12 informants in Langsa City who have been involved in illegal online loans.

Finding - The research findings highlight the crucial role of financial literacy and financial inclusion in reducing the risks of individuals falling into debt from illegal online loans. Financial literacy helps individuals identify suspicious loan offers and understand their risks, while digital financial inclusion enables broader access to legitimate Sharia financial services, which can help reduce interest rates on illegal loans.

Practical Implication - This research is the necessity for cooperation between the government, such as the Financial Services Authority (OJK), and stakeholders in the financial industry, particularly in the banking and Sharia financial sectors, to enhance financial literacy and financial inclusion for the community. This will help create a safer financial environment and protect society from harmful practices associated with illegal loans.

Novelty - This research lies in its comprehensive approach to the issue of illegal online loans, considering the aspects of financial literacy and Sharia financial inclusion, as well as digital financial literacy within one research framework. The integration of these elements provides deeper insights into how financial literacy and financial inclusion can be utilized within the context of Sharia finance to protect society from the risks of illegal loans. This approach has not been extensively covered in previous academic literature.