This study analyzes the impact of GDP, inflation, geopolitical tensions, and regulatory changes on the Islamic banking and finance sector in Indonesia and Malaysia, focusing on financial inclusion, asset growth, and industry resilience. A quantitative research approach is employed, utilizing secondary data from Islamic banks’ annual reports, the International Monetary Fund (IMF), and political instability indices. Multiple linear regression and panel data econometric models are used to quantify the effects of economic downturns, geopolitical tensions, and regulatory changes on key outcomes. Findings indicate that GDP and inflation rates do not significantly impact the sector (p-values of 0.3218 and 0.2372, respectively), while the Political Instability Index is a significant factor with a strong positive correlation (p-value: 0.0004), suggesting that higher political instability adversely affects performance. Additionally, regulations surrounding digital banking play a crucial role, exhibiting a highly significant positive impact (p-value: 0.0000). This research fills a critical knowledge gap regarding the sector’s resilience to global disruptions, offering valuable insights for policymakers, financial institutions, and academics. It highlights the importance of stable political environments and effective regulatory frameworks in enhancing financial stability and inclusivity. Policy implications emphasize the need to strengthen regulatory frameworks, enhance financial literacy, and foster innovation in the Islamic finance sector to better navigate global uncertainties, ultimately contributing to a more robust and inclusive financial system.