<![CDATA[General Background: The volatility of foreign exchange rates poses significant risks to financial stability, especially in Islamic banking, where conventional hedging instruments are often non-compliant with Sharia principles. Specific Background: In Indonesia, Islamic banks increasingly engage in international transactions, amplifying exposure to currency fluctuations without sufficient Sharia-compliant risk mitigation tools. Knowledge Gap: Despite various studies on individual hedging instruments, a comprehensive synthesis evaluating the effectiveness and implementation challenges of Islamic hedging in Indonesia has been lacking. Aims: This study aims to systematically review the application of three primary Islamic hedging instruments—wa’d-based forward, cross currency swaps, and natural hedging—in Indonesian Islamic banks, and assess their effectiveness and constraints. Results: The findings reveal that wa’d-based forward is the most frequently utilized instrument, offering Sharia-compliant mitigation of exchange rate risk. However, limited market liquidity, regulatory ambiguity, and low technical capacity hinder optimal implementation. Novelty: This study provides the first consolidated evaluation of Islamic hedging in Indonesia using a Systematic Literature Review (SLR) method, identifying thematic research trends, barriers, and regulatory gaps. Implications: The results suggest the need for policy reform, international collaboration, and product innovation to strengthen Indonesia’s Sharia-compliant financial risk management ecosystem.Highlight : Islamic hedging tools like wa’d-based forward and CCS reduce currency risk while complying with Sharia law. Implementation in Indonesia faces challenges such as low market liquidity and limited regulatory support. Compared to Malaysia, Indonesia needs stronger innovation and collaboration to advance its Islamic hedging practices. Keywords : Systematic Literature Review, Sharia Hedging, Foreign Exchange Risk, Islamic Banking, Financial Stability]]>
