The Effectiveness of Islamic Banking Regulations on Local Sharia-Based Economic Development in Pari City, Serdang Bedagai

Abstract

This study examines the effectiveness of Islamic banking regulations in supporting local Sharia-based economic development in Pari City, Serdang Bedagai, North Sumatra. Employing a normative-empirical legal research approach, the study analyzes Islamic banking regulations as positive legal norms while also assessing their implementation and socio-economic impact at the local level. The findings indicate that Indonesia’s Islamic banking regulatory framework, grounded in Law No. 21 of 2008 on Sharia Banking and reinforced by policies of the Financial Services Authority (OJK) and Bank Indonesia, normatively reflects Islamic legal values such as justice (‘adl), trust (amanah), and public welfare (maslahah). Nevertheless, the effectiveness of these regulations in fostering local Sharia-based economic development remains limited due to low levels of Sharia financial literacy, weak institutional outreach, and inadequate coordination between financial institutions and local governments. The study concludes that enhancing regulatory effectiveness requires not only legal certainty, but also strengthened legal awareness, institutional collaboration, and integration of Islamic banking policies with local economic development strategies to achieve inclusive, equitable, and sustainable regional economic growth.