Risk Management of Islamic Microfinance (IMF) Product by Financial Institutions in Malaysia

Maintaining microfinance institutions’ (MFIs) sustainability is extremely significant owing to the fact that it aims at alleviating poverty and improving the living standard of the poor at the same time. Hence, a sustainable Micro Finance Institution (MFI) is necessary in order to achieve the objective thereby realizing a just economic growth. Nevertheless, there are issues and challenges being faced by the institutions that could give impact towards their sustainability. Among others are moral hazards 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 quantitative study was conducted to examine the practice of risk management in the specific context of Islamic microfinance (IMF) product offered by several Islamic financial institutions in Malaysia. Primary data were collected through the distribution of questionnaires to the selected officers of the bank. Findings of the study indicated that the institutions had taken the necessary steps in managing the risks.