RISK MAPPING ON LENDING METHOD OF SHARIA MICRO FINANCING INSTITUTION (INDONESIA EVIDENCE)

Abstract

The purposes of financing method are to maintain the smoothness of financial return and to mitigate the risk of default, especially for microfinance institutions. It is similar to the 5Cs in banking. However, Islamic microfinance institutions have quite striking differences in practice. This research aimed to analyze the risk management of financing method on Sharia Micro Financing Institutions (SMFIs) in Indonesia with ERM (Enterprise Risk Management) approach  classifying the risks become 4 part; strategic risks, operations risks, reporting risks, and compliance risks. The research method was a qualitative descriptive study by breaking down risk events into 2 categories, namely the financing process and the financing actors. The financing process was divided into 3 stages, namely pre-processing, processing, and post-processing. While, the financing actors were debtors, creditors, and funding source institutions. The data collection methods were observation, in-depth interview, and library research. This research identified 64  risk events. The risk that most often faced by financing actors was the one inherent in the debtor. While, the risk that mostly faced by creditors was during the pre-financing process. The highest undesirable risks were debtor’s misunderstanding of sharia and interest-based contracts, misassessment of the company propriety, and difficulty in insurance claims.