Strategic Innovation Pathways in Shariah-Compliant Fintech: A Comparative Study of Saudi Arabia and Indonesia

Abstract

Purpose: This study investigates the strategic management of innovation within the uncertain domain of Shariah-compliant fintech. It addresses a core dilemma for entrepreneurs and corporate innovators: navigating the tension between scaling efficient, low-risk digital products (Murabaha) and pioneering idealistic, high-risk business models (Musharakah). We develop a diagnostic framework to help firms forecast viable innovation pathways under divergent institutional conditions.

Design/methodology/approach: Employing a comparative, theory-building design, we conduct diagnostic case studies of the Saudi and Indonesian ecosystems. These inform a scenario planning exercise, constructing three plausible innovation regimes. The findings are synthesized into a Dynamic Causal Model that identifies the systemic loops driving or constraining strategic innovation.

Findings: The analysis reveals three distinct innovation regimes: Efficiency-Optimized Markets, Idealism-Enabled Ecosystems, and Stagnated Innovation Environments. Each regime dictates a primary strategic imperative for fintech firms, requiring specific organizational capabilities and resource allocation. The comparative analysis shows that the dominant constraint on innovation shifts from a product-level pragmatism trap in formal markets to a market-structure informality trap in emerging economies.

Originality/value: This paper moves from ecosystem description to a strategic management tool. Its primary contribution is a comparative forecasting framework that enables innovation managers to diagnose binding constraints, align their innovation portfolios with market trajectories, and make informed strategic choices between exploitation and exploration in ethical finance. For Islamic finance scholars, this study bridges Shariah governance theory and strategic management by demonstrating how centralized (OIC Fiqh Academy) versus consultative (DSN-MUI) governance structures create distinct innovation constraints and pathways.

Practical implications: The study provides clear strategic guidance for fintech CEOs, R&D managers, and investors on capability-building, partnership strategies, and risk assessment. For policymakers, it reframes the role of regulation as designing ecosystems that de-risk exploratory innovation for firms.