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Risk management of Islamic microfinance institutions: unique practices at crucial risks

Author

Listed:
  • Sholeh Wafi

    (UIN Maulana Malik Ibrahim, Jl. Raya Ir. Soekarno No. 34 Batu, Jawa Timur 65324, Indonesia)

  • Helmi Muhammad

    (Department of Sharia Economics, Faculty of Economics and Business, Universitas Islam Raden Rahmat, Jl. Raya Mojosari No. 2 Kepanjen Malang, Jawa Timur, 65163, Indonesia)

Abstract

The objective of this study is to gain a better understanding of risk management and control practices at BMT UGT Nusantara, an Islamic microfinance institution in Indonesia, with a particular emphasis on financing risk, liquidity risk, and Sharia compliance risk. These three risks are said to occur frequently and have a direct impact on performance. Because of the uniqueness of the site, the design of this qualitative research is descriptive and exploratory with a holistic single-case approach. In-depth interviews, field observations, focus group discussions, and a review of supporting documents were used to collect data. Because the interactive cycle process includes data collection, data reduction, data presentation, and data withdrawal, data analysis employs an interactive model. The data was validated using the criteria of credibility, transferability, dependability, and confirmability. The study's findings show that BMT UGT Nusantara, an Islamic microfinance institution in Indonesia, employs traditional-partial risk management on financing risk, liquidity risk, and Sharia compliance risk. Risk management is carried out by integrating "macul bumi", or outward efforts based on sincerity, and "macul langit", or spiritual efforts. Furthermore, it employs information systems that play an important role in risk management in order to improve organizational performance and competitive advantage.

Suggested Citation

  • Sholeh Wafi & Helmi Muhammad, 2023. "Risk management of Islamic microfinance institutions: unique practices at crucial risks," International Journal of Business Ecosystem & Strategy (2687-2293), Bussecon International Academy, vol. 5(3), pages 42-50, July.
    • Handle: RePEc:adi:ijbess:v:5:y:2023:i:3:p:42-50
    DOI: 10.36096/ijbes.v5i3.417
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    References listed on IDEAS

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    1. repec:eme:hppsss:v:25:y:2009:i:3:p:217-235 is not listed on IDEAS
    2. Nurul Syazwani Mohd Noor & Abdul Ghafar Ismail & Muhammad Hakimi Mohd. Shafiai, 2018. "Shariah Risk: Its Origin, Definition, and Application in Islamic Finance," SAGE Open, , vol. 8(2), pages 21582440187, April.
    3. Mohamed Ariff & Munawar Iqbal, 2011. "Introduction to Islamic Financial Institutions," Chapters, in: Mohamed Ariff & Munawar Iqbal (ed.), The Foundations of Islamic Banking, chapter 1, Edward Elgar Publishing.
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