Sharia Compliance as Political Currency? Examining Regulatory Capture, Market Symbolism, and Economic Outcomes in Indonesia’s Islamic Finance Policy

Abstract

Indonesia’s Islamic finance sector presents a unique intersection of religious legitimacy, political economy, and market governance, where sharia compliance functions not only as a doctrinal requirement but also as a symbolic and strategic tool in state and market interactions. This study examines how regulatory capture, institutional authority, and market symbolism shape the design, implementation, and socio-economic outcomes of sharia-compliant financial products. Using a qualitative library research methodology, the paper explores DSN-MUI fatwas, state regulatory frameworks, and institutional practices to understand the interplay between delegated religious authority and market-driven compliance. Findings reveal that sharia compliance operates as a form of political currency: it legitimizes regulatory actors, signals market credibility, and influences public trust, yet it also produces structural tensions in enforcement, institutional accountability, and digital finance adaptation. The study argues that the political and symbolic dimensions of sharia compliance increasingly mediate economic outcomes, creating a duality in which doctrinal authority is interwoven with governance effectiveness. Consequently, the effectiveness of Islamic finance policy in Indonesia depends not solely on fatwa authority, but on the integration of regulatory transparency, market signaling mechanisms, and adaptive governance frameworks capable of addressing both conventional and fintech-driven financial ecosystems. This paper contributes theoretically to the discourse on the politics of sharia compliance and empirically to understanding the limitations and opportunities in Indonesia’s Islamic finance regulatory environment.