Transformation of Indonesian Islamic Banking: Opportunities, Challeges, and The Future

Abstract

This study aims to analyze the transformation of Islamic banking in Indonesia by highlighting key strategic opportunities, major challenges, and future development directions. A descriptive qualitative approach is used, employing a literature review method based on secondary data such as official reports from the Financial Services Authority (OJK), Bank Indonesia, and recent academic publications. The study is grounded in organizational transformation theory, innovation theory, human capital theory, and institutional theory as its analytical framework. The findings reveal that the transformation of Islamic banking is driven by digitalization of financial services, increasing public awareness of Islamic economics, and strong regulatory support. However, the sector continues to face challenges such as limited innovative products, a shortage of competent human resources, and institutional structures that remain dependent on conventional parent banks. The study concludes that the success of Islamic banking transformation in Indonesia requires a holistic strategy encompassing institutional strengthening, human capital development rooted in Islamic values, and collaboration among financial institutions, the halal industry, and regulators. With such strategic efforts, Indonesia holds significant potential to become a global hub for Islamic finance.