Any system of governance where government formation, law making and decision making corroborates consultation with consensus is Islamic. In the contemporary scenario, democracy is the most apt example of such a proactive system of citizenry consensus and consultative governance and therefore, it’s most compatible with Islam.
Tomorrow a more enhanced system of such governance may be available at our disposal. Something like a bigger version of the system of self governance as enunciated under the paradigm of three-tier Panhayati Raj System in India. Democracy is one system of governance which is in consonance with Islamic principles but tomorrow, as I stated earlier, we may have an even better system whose Quranic acceptability will be higher simply because it’ll provide the electorate with greater force of articulation so we can say that democracy is permissible by Islam but it doesn’t command any monopolistic permissibility. It’s true that many of the countries in which Muslims are in majority happen to be undemocratic where human rights are painfully bulldozed but that’s not the intrinsic Islamic way of governance. In monarchies and dictatorships, there is unilateral decision making and hence, they can be ruled as un-Islamic simple because of the fact that the mandate of the people is not ascertained before swinging into action and that bluntly violates the Islamic teaching of managing affairs via consultation and consensus.