Strategic Change Management in Islamic Financial Institutions: Navigating Digital Transformation with Sharia Compliance

Abstract

This study examines how Islamic financial institutions (IFIs) strategically manage change amid digital transformation while ensuring strict adherence to Sharia compliance. The rapid advancement of financial technologies presents both opportunities and challenges for IFIs, which must balance innovation with religious principles prohibiting interest, uncertainty, and unethical practices. The research aims to explore leadership approaches, organizational culture, and governance mechanisms that facilitate this balance. Employing a qualitative multiple case study methodology, data were collected through semi-structured interviews, document analysis, and observations within three IFIs in Southeast Asia. Thematic analysis revealed that effective change management in IFIs hinges on leadership that integrates technological expertise with deep Sharia knowledge, active participation of Sharia supervisory boards throughout the change process, and an organizational culture rooted in Islamic ethical values. IFIs adopt cautious yet progressive digital adoption strategies, leveraging partnerships with fintech and scholars to enhance innovation while maintaining compliance. The findings demonstrate that strategic change management enables IFIs to harmonize digital innovation with religious mandates, ensuring sustainable growth in a competitive financial landscape. This research contributes to the academic discourse by highlighting the unique challenges and solutions in faith-based financial institutions’ digital transformation, offering valuable insights for practitioners and policymakers.