Proceeding of the International Conference on Contemporary Economic Issues 2014

 

FINANCIAL RISK AND RISK MANAGEMENT OF ISLAMIC MICROFINANCE (IMF) PRODUCT

 

Siti Khadijah Ab Manana, Siti Nurfarah Jaaffarb, Muhammad Hakimi Mohd Shafiaic,Fadhilah Abdul Rahmand, Syarifah Hazera Izzati Sayid Shahrullaile

 

Abstract  

Maintaining microfinance institutions’ (MFIs) sustainability is extremely significant owing to the fact that it is aimed at alleviating poverty and improving the living standard of the poor. Hence, a sustainable Micro Finance Institution (MFI) is necessary in order to achieve the objective   of   realizing   equitable   economic   growth.   Nevertheless,   there   are   issues   and challenges   being   faced   by   the   institutions   that   could   give   impact   towards   their sustainability. Among   others   are   moral   hazard   and   adverse   selection   problems   among participants that would ultimately give potential risks to the institutions. Hence, maintaining its sustainability by way of risk management is significant in ensuring financial inclusion of the poor and materializing the objective   of poverty alleviation. This qualitative study was conducted to examine one type of   financial   risk   i.e.   credit   risk   in   the   specific   context  of Islamic microfinance (IMF) product. The study focused on one particular product of a selected bank in Malaysia known as Micro Financing-I (MUsK). Primary data was collected through structured interviews with selected officers of the bank. Findings of the study indicated the presence of default risks among the borrowers.