Purpose This paper aims to explore the prospects and the challenges of Islamic fintech in Indonesia. This study also proposes a comprehensive legal framework to encourage and accelerate the growth of the Islamic economy. Design/methodology/approach This study is the result of legal research with a statute approach and conceptual approach. The types of data used are legal materials consisting of primary legal materials and secondary legal materials. The technique of collecting legal materials is done by using library research techniques. The legal materials were analyzed using the legal norm method. Findings Indonesia is a country with the largest Muslim population in the world. However, the market size of Indonesia’s Islamic fintech is still below Saudi Arabia, Iran, United Arab Emirates (UAE) and Malaysia. Saudi Arabia’s Islamic fintech is the biggest market in the world, with 17.9bnworthoftransactionsin2020whileIranisat 9.2 bn, UAE 3.7bn,Malaysia 3.0 bn and Indonesia 2.9bn.ThisconditionwasduetovariouschallengesintheIslamicfintechindustryinIndonesia,includinginadequateregulations;complicatedpermitprocedures;misuseoffintechforfinancingterrorism;rampantoccurrenceofillegalfintechbusinesses;andconsumerdisputesinthefintechsector.ThesechallengesrequiretheconstructionofacomprehensivelegalframeworkthroughtheformationofanActonFintech.Researchlimitations/implicationsThefocusofthisresearchwaslimitedtotheproblemsoccurringintheIslamicfintechsectorinIndonesiaasacountrywiththelargestMuslimpopulationintheworld.PracticalimplicationsTheresultsofthisresearchcanbeusedasrecommendationsfortheformulationofcomprehensivepoliciesforthegrowthanddevelopmentofIslamicfintech.SocialimplicationsIslamicfintechrequiresacomprehensivelegalframeworkthatfunctionstoencouragethedevelopmentoftheIslamicfintechindustry,digitaleconomygrowthandlegalmitigationofvariouslegalrisksandmisuseoffintechforfinancialcrimeandfinancingterrorism.Originality/valueThispaperproposesanoriginalideaofcreatingalegalframeworkinaformoftheIslamicFintechAct.TheActshouldcoversuchlegalsubstancesasfollows:Islamiccompliance;anintegratedone-stoppermitprocedure;divisionofauthority,coordinationandsynergyamongauthorities;preventionandresolutionofdigitalfinancialsystemcrisis;criminalsanctions;andconsumerdisputeresolutionmechanismsandalternativeinstitutionforfintechconsumerdisputeresolution.