Dispute Resolution in Islamic Banking Contracts through Alternative Dispute Resolution

Abstract

Dispute resolution has become a critical issue in Islamic banking due to the increasing complexity of Sharia-compliant financial contracts and the growing volume of commercial transactions. This study examines the role of Alternative Dispute Resolution (ADR) in resolving disputes arising from Islamic banking contracts by analyzing its legal foundation, institutional framework, procedural effectiveness, and conformity with Islamic legal principles. The research employed a qualitative normative legal approach using statutory, conceptual, case, and comparative approaches. Data were collected through an extensive review of statutory regulations, judicial decisions, and scholarly literature concerning Islamic banking dispute resolution in Indonesia and selected international jurisdictions. The findings indicate that ADR mechanisms, particularly negotiation, mediation, and arbitration, provide effective alternatives to litigation by promoting procedural efficiency, confidentiality, legal certainty, and the preservation of long-term commercial relationships. The study further reveals that the successful implementation of ADR depends on harmonized legal regulations, institutional capacity, professional expertise, standardized contractual clauses, and public awareness. Based on these findings, this study proposes an integrated ADR framework that applies negotiation, mediation, arbitration, and litigation in a sequential process according to the complexity of disputes. The proposed framework strengthens legal certainty while ensuring compliance with Sharia principles and supporting the sustainable development of the Islamic banking industry.