TRUST BEYOND DEPOSIT INSURANCE: LOYALTY IN COMMUNITY-BASED ISLAMIC MICROFINANCE

Abstract

Community-based Islamic microfinance institutions, such as Baitul Maal wa  Tamwil (BMT), can maintain members' loyalty to saving at the BMT despite  operating outside formal deposit insurance. This study explains how BMT members  interpret risk and construct trust in this setting and identifies the mechanisms that sustain loyalty. A qualitative single interpretive case study was conducted at a community-based BMT in Yogyakarta through semi-structured interviews with  seven active members. Data were analyzed using inductive thematic analysis. The findings show that risk is not ignored or eliminated; it is socially and morally  reinterpreted through prior experience, religious values, and community relationships. Trust is supported by community institutional legitimacy, managerial  integrity and track record, relational service practices, moral-religious values, and  social embeddedness. Together, these mechanisms produce perceived trust that functions as a behavioral substitute, but not a legal or financial equivalent to formal  deposit insurance in sustaining saving decisions. This study contributes to Islamic microfinance literature by demonstrating how socially embedded trust can support institutional continuity while members continue to recognize residual financial risk.