Digital Emergency and Regulatory Change in Islamic Microfinance Between Indonesia and Malaysia

The rapid digitalization of Islamic Microfinance Institutions (IMFIs) has generated both opportunities for financial inclusion and new layers of controversy, particularly in relation to Shariah governance, regulatory fragmentation, and consumer trust. This study explores the transformation of Islamic Microfinance Institutions (IMFIs) in response to digital emergencies and shifting regulatory frameworks, focusing on how these changes influence sustainable Shariah compliance. Using a descriptive–explorative qualitative approach, the research examines comparative data from Indonesia and Malaysia through document analysis and digital observation. The findings reveal that regulatory fragmentation, inconsistent fatwa implementation, and limited digital supervision create systemic vulnerabilities that undermine client trust and transparency. Indonesia’s decentralized governance structure encourages innovation but weakens regulatory coherence, while Malaysia’s centralized model ensures stronger compliance but restricts grassroots flexibility. The study contributes scientifically by framing controversy as a constructive driver of institutional reform, integrating maqāṣid al-sharīʿah ethics with regulatory theory, and proposing an analytical model for harmonizing Shariah governance with positive law in the digital era. However, the research is limited by its qualitative scope, the rapid evolution of fintech policies, and the absence of quantitative validation. Overall, the study advances scholarly understanding of how digitalization, law, and Islamic ethics intersect to foster resilient, inclusive, and ethically sustainable financial ecosystems within the Islamic microfinance sector.