Deposit Insurance and Financial Stability in Indonesian Islamic Banking: A Systematic Literature Review

Abstract

Introduction/Main Objectives: This study examines the role of the Indonesia Deposit Insurance Corporation (LPS) in strengthening public trust and supporting financial stability in Indonesian Islamic banking. Background Problems: Deposit insurance is fundamental to financial stability and public confidence, but its implementation differs in Islamic banking due to distinct contract structures. Prior studies have examined deposit insurance and financial stability separately, leaving systematic evidence on their link through public trust still lacking. Novelty: This study offers a systematic synthesis of empirical evidence on the interrelationship between deposit insurance, public trust, and financial stability in Indonesian Islamic banking, an integration not explicitly addressed by prior systematic reviews. Research Methods: A Systematic Literature Review following PRISMA 2020 guidelines was conducted across Scopus, Web of Science, and ScienceDirect for articles published 2016–2026. Finding/Results: Five main themes emerged: depositor protection/deposit insurance (9 studies), digital transformation in Islamic banking (8), systemic risk and financial stability (4), bank resolution/regulatory authority (3), and Islamic insurance/takaful (1). LPS appears to strengthen depositor confidence through deposit guarantees, orderly bank resolution, and coordination with financial authorities, with effectiveness depending on alignment with sharia contract structures. Digital transformation remains a growing but largely separate research theme, with limited evidence directly linking it to deposit insurance. Conclusion: LPS appears to contribute to public trust and financial stability in Indonesian Islamic banking, conditional on sharia compliance and institutional capacity, while its role in digital transformation and financial inclusion requires further empirical testing.