Arbitration in Islamic banking: Exploring legal and practical implications for dispute resolution

Dispute resolution in Islamic banking presents unique legal and procedural challenges due to the dual requirement of compliance with national laws and Islamic Sharia principles. This study aims to evaluate the legal and practical effectiveness of arbitration in resolving Islamic banking disputes, particularly in terms of efficiency, compliance with Sharia, and institutional trust. A qualitative approach was employed, based on semi-structured interviews with 12 domain experts, including Islamic banking professionals, arbitrators, legal advisors, and Sharia scholars, each with 10–25 years of experience in relevant fields.The findings indicate that 83% of respondents (10 out of 12) believe arbitration is more efficient than litigation in Islamic banking disputes, particularly in terms of speed and confidentiality. 75% of participants identified the lack of codified Sharia-compliant arbitration frameworks as a major limitation to broader adoption. Meanwhile, 67% emphasized the absence of a unified Sharia Supervisory Board as a critical institutional gap affecting arbitration legitimacy. Furthermore, 58% of experts pointed to weak trust in arbitration outcomes among financial institutions as the key reason arbitration clauses are often excluded from contracts.Despite these barriers, 92% of respondents agreed that arbitration has high potential to resolve Islamic banking disputes effectively if institutional and legislative reforms are implemented. The study recommends establishing standardized arbitration protocols, enhancing regulatory oversight, and developing Sharia-aligned legal infrastructure.These insights contribute to the broader discourse on Islamic finance governance and offer practical recommendations for policymakers, arbitration centers, and financial institutions seeking to enhance dispute resolution mechanisms in line with Sharia principles. AcknowledgmentThe authors are thankful to the Deanship of Graduate Studies and Scientific Research at the University of Bisha for supporting this work through the Fast-Track Research Support Program.