MERGERS AND ACQUISITIONS IN ISLAMIC BANKS AND FINANCIAL INSTITUTIONS: TOWARDS STREAMLINING OPERATIONAL SYSTEMS

The growing competitiveness of the global financial system, coupled with increasing regulatory requirements such as Basel III and evolving customer demands, has made mergers and acquisitions (M&A) an essential strategy for strengthening the resilience and scalability of Islamic finance. The problem addressed in this study is the limited understanding of how Islamic financial institutions can leverage M&A for capital enhancement, operational efficiency, and global expansion while maintaining strict adherence to Shariah principles. The main objective is to examine the benefits, challenges, and strategic approaches involved in M&A activities within the Islamic finance sector. A qualitative content analysis method was employed, utilizing data from peer-reviewed journal articles, regulatory reports (IFSB, AAOIFI), case studies of recent Islamic bank mergers, and industry white papers. The findings show that M&A enhances financial stability by expanding capital bases, diversifying product lines such as Sukuk and Takaful, and facilitating cross-border market access. However, integration challenges persist due to divergent Shariah interpretations, regulatory variances, and cultural misalignments. The novelty of this study lies in its multidimensional approach that bridges strategic management theory, regulatory analysis, and Shariah governance to explain how Islamic banks can achieve sustainable consolidation without compromising faith-based principles. This perspective moves beyond prior empirical works focused mainly on post-merger financial performance, offering new insights into governance integration, ethical compliance, and operational modernization. The study recommends developing standardized Shariah compliance frameworks, early regulatory engagement, Islamic FinTech integration, and culturally sensitive change management strategies for effective merger execution.