Sharia-compliant financing as fiscal policy instrument: an Islamic economic approach to budget deficit management

Abstract

Budget deficits are a recurring fiscal challenge for many countries, including
Indonesia, where reliance on conventional financing methods such as interestbased debt often imposes long-term economic burdens. This study explores the
potential of Islamic financial instruments as an alternative solution to address
budget deficits, emphasizing sustainability, fairness, and compliance with sharia
principles. Using a qualitative approach through literature review and descriptive
analysis, the research examines the implementation and effectiveness of
instruments such as sukuk, crowdfunding, and securities crowdfunding based on
sukuk. The findings reveal that these sharia-compliant tools not only provide
viable financing options without the burden of interest but also foster public
participation and uphold social justice principles. The study highlights the
importance of strengthening regulatory frameworks and integrating Islamic
financial systems into national fiscal policies to create a more inclusive, stable,
and ethical financing ecosystem. The implications of this research underscore the
potential of Islamic finance to contribute to sustainable economic development
while adhering to ethical and religious values