FROM FINANCIAL FRAGILITY TO ECONOMIC STABILITY: THE ROLE OF ISLAMIC FINANCE IN CRISIS PREVENTION: Dari Kerentanan Keuangan menuju Stabilitas Ekonomi: Peran Keuangan Syariah dalam Pencegahan Krisis

Abstract

The periodic nature of global financial crises, growing sovereign debt and economic inequality, along with market instability highlights the weakness of today’s financial system. This research’s goal is to analyse the structural deficiencies of conventional finance and the possibility of Islamic finance as an alternative sustainable market paradigm to eliminate future economic crises. It also aims to examine how emerging technologies, such as artificial intelligence (AI), blockchain technology and Islamic financial technology (Islamic FinTech) can enhance the effectiveness and world-class status of Islamic financial systems. The research in this study is qualitative, based on doctrinal and literature analysis, where the sources are scholarly articles, reports and literature reviews on Islamic economics, financial crisis, and sustainable finance. Analysis has shown that leading causes of financial instability are excessive debt dependency, speculative ones, and the lack of connection between economic actual and financial transactions. The Islamic finance offers preventive solutions, which include the use of risk-sharing instruments, asset-backed transactions, ethical governance, and social finance instruments like Zakat and Waqf which together ensure economic justice and resilience. To conclude, Islamic finance is an alternative financial system which is comprehensive, is oriented towards the future, and can change the financial fragility into economic stability. Islamic finance can play a role in building a more inclusive, ethical, and sustainable global civilization by combining the principles of Islam with modern technological innovations.