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

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.    

Keywords: {'name': 'Risk Management'}, {'name': 'Islamic Microfinance Institutions'}, {'name': 'Financing Risk'}, {'name': 'Liquidity Risk'}, {'name': 'Sharia Compliance Risk'}

Authors & affiliations

Sholeh Wafi
Affiliation not supplied

Helmi Muhammad
Affiliation not supplied

Deposited references

Supplied references, not a list of publications citing this article.

DOI: 10.1108/H-01-2014-0006

DOI: 10.1016/j.pacfin.2017.04.004

DOI: 10.1002/9781118858035

DOI: 10.1057/9780230598751

DOI: 10.3390/jrfm12010037

DOI: 10.1108/H-12-2014-0072

DOI: 10.1108/978-1-78635-452-520161020

Al-Suwailem, S. (2012). Towards an Objective Measure of Gharar in Exchange. Journal of Islamic Business and Management, 2(1). https://papers.ssrn.com/abstract=3164801

DOI: 10.1007/s00181-019-01709-1

DOI: 10.1108/QRFM-05-2017-0042

DOI: 10.1016/j.ijresmar.2021.05.004

DOI: 10.1108/JIABR-10-2012-0070

DOI: 10.2139/ssrn.1632849

DOI: 10.3390/jrfm13010002

DOI: 10.4135/9781452204840

DOI: 10.1163/15730255-BJA10008

DOI: 10.1002/jsc.1998

DOI: 10.1016/j.ribaf.2020.101313

DOI: 10.1108/IJMF-08-2019-0308

DOI: 10.1016/j.jbusvent.2014.10.003

DOI: 10.1016/j.worlddev.2006.01.006

DOI: 10.1108/IJoEM-03-2017-0086

DOI: 10.1177/014920630102700306

DOI: 10.1016/j.jbankfin.2012.01.002

DOI: 10.1504/IJISE.2016.080288

DOI: 10.1016/j.emj.2019.06.005

DOI: 10.1108/AFR-10-2018-0091

DOI: 10.1007/978-3-319-91295-0_17

DOI: 10.1108/H-08-2016-0066

DOI: 10.1016/j.gfj.2021.100651

DOI: 10.1142/S1793993316500034

Hussain, R. I., Fareed, Z., Saleem, I., Hussain, S., & Adnan, S. (2012). Implementation of Basel II in Microfinance Sector of Pakistan. European Journal of Business and Management, 4(2).

Iqbal, A. (2012). Liquidity Risk Management: A comparative study between Conventional and Islamic banks of Pakistan. Global Journal of Management and Business Research, 12(5), 55–64.

DOI: 10.32890/ijbf2013.10.2.8472

DOI: 10.1002/9781118390474

DOI: 10.1177/0899764009332466

DOI: 10.1016/j.pacfin.2020.101437

Khan, T., & Ahmed, H. (2001). Risk management: An analysis of issues in Islamic financial industry (First edition). Islamic Development Bank, Islamic Research and Training Institute.

DOI: 10.1002/9781118809181

DOI: 10.5901/mjss.2013.v4n3p159

DOI: 10.12816/0000239

DOI: 10.26740/al-uqud.v4n2.p235-249

DOI: 10.1007/s10270-018-0661-x

DOI: 10.1177/1525822X02239573

Merriam, S. B. (2009). Qualitative research: A guide to design and implementation. Jossey-Bass.

Miles, M. B., Huberman, A. M., & Saldaña, J. (2014). Qualitative data analysis: A methods sourcebook (Third edition). SAGE Publications, Inc.

DOI: 10.1177/2158244018770237

DOI: 10.1037/0022-0167.52.2.250

DOI: 10.17977/um060.2020v1p022-031

DOI: 10.1108/QRFM-06-2021-0099

DOI: 10.1016/j.csi.2018.11.009

Sekaran, U., & Bougie, R. (2016). Research methods for business: A skill-building approach (Seventh edition). John Wiley & Sons.

DOI: 10.1108/08288660910986946

DOI: 10.1080/13669877.2010.541562

DOI: 10.4337/9781786433503

Yin, R. K. (2014). Case study research: Design and methods (Fifth edition). SAGE.