Sharia People's Banks (BPRS) play a crucial role in promoting financial inclusion and empowering Micro, Small, and Medium Enterprises (MSMEs) in rural Indonesia. Regulatory changes through Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector (UU P2SK) have brought significant transformation to the BPRS industry, particularly through the change in nomenclature from "Sharia People's Financing Bank" to "Sharia People's Economic Bank." This change has various legal, administrative, and operational implications that require adjustments by all BPRS. This study aims to analyze the development of BPRS regulations in Indonesia, evaluate the effectiveness of supervision by the Financial Services Authority (OJK) and the role of the Sharia Supervisory Board (DPS) following the enactment of the P2SK Law and POJK Number 3/POJK.03/2022, identify operational challenges faced by BPRS, and formulate an integrated Sharia-digital governance model. The method used is qualitative-descriptive research with a normative-empirical legal approach. The data were analyzed using thematic analysis based on legal documents, financial authority regulations, fatwas from the National Sharia Council (DSN-MUI), and case studies of several regional BPRS. The results show that changes in nomenclature result in significant administrative burdens and legal costs, particularly related to adjustments to articles of association and changes to internal regulations. On the other hand, the implementation of risk-based bank health assessments and digital reporting through the APOLO system improves market discipline and the quality of supervision. However, these policies also pose challenges for small-scale BPRS with limited human resources and technological infrastructure. Furthermore, restrictions on payment traffic services have encouraged BPRS to collaborate with Islamic fintech companies to improve competitiveness and digital services. This study concludes that harmonization between state regulations and Sharia compliance principles is a key factor in maintaining the stability of the BPRS industry. To support the sustainability of this sector, it is necessary to strengthen the role of the Sharia Supervisory Board (SPS), provide shared technological infrastructure, increase human resource capacity, and develop policies that can increase public trust in the Islamic banking industry.