Islamic banking in Indonesia continues to grow as an alternative financial system based on the principles of justice and Sharia compliance. However, this growth also presents challenges, particularly the risk of customer moral hazard, which may undermine the stability of financing activities. To address this issue, fiqh mu’amalah offers the concept of ta’widh, which serves as compensation for actual losses resulting from contractual breaches. This study aims to examine the implementation of ta’widh in Islamic banking practices, assess its alignment with the principles of fiqh mu’amalah, and identify the challenges and practical solutions for its application. The research adopts a qualitative exploratory method with a normative-empirical approach. Data were collected through in-depth interviews, reviews of banks' Standard Operating Procedures (SOPs), and analysis of classical and contemporary fiqh literature. Data analysis was conducted descriptively and analytically using the Miles and Huberman model, involving data reduction, data display, and conclusion drawing, supported by Atlas.ti 25 software for open coding, theme categorization, and systematic mapping of inter-category relationships. The results reveal significant differences between the two banks studied. Bank Muamalat KCP Ponorogo has not implemented ta’widh due to the absence of a mechanism for proving actual losses and a cautious approach to upholding Sharia principles. Meanwhile, BTN Syariah KCP Sragen has applied ta’widh to compensate for real financial losses, alongside the application of ta’zir through educational late payment charges. Key obstacles identified include weak technical regulations, low Sharia literacy among bank staff and customers, and the suboptimal role of the Sharia Supervisory Board in monitoring implementation. To overcome these challenges, the study recommends harmonization between DSN-MUI fatwas and national banking regulations, the formulation of detailed technical SOPs for ta’widh, the implementation of Sharia literacy programs for all stakeholders, and the strengthening of the Sharia Supervisory Board's role to ensure that ta’widh functions effectively as an instrument for protecting rights and promoting justice in Islamic financing transactions.