Governance Frameworks and Risk Management in Islamic Microfinance Institutions: A Textual Analysis Approach

Abstract

Islamic Microfinance Institutions (IMFIs) play a pivotal role in supporting economic empowerment among underserved Muslim populations through sharī‘ah-compliant financial services. However, these institutions face an array of risks—ranging from operational inefficiencies to compliance misalignments—that necessitate structured governance mechanisms. Despite growing academic interest, the governance of risk management in IMFIs remains under-theorized, particularly within the context of classical Islamic thought and contemporary institutional realities. This study aims to examine the governance structures underpinning risk management practices in Islamic microfinance, employing a qualitative textual analysis of contemporary regulatory documents, classical jurisprudential sources, and scholarly works. By integrating perspectives from fiqh al-muʿāmalāt and international financial governance literature, this paper identifies foundational principles, key institutional roles, and challenges that shape risk governance in IMFIs. Findings reveal a convergence between traditional Islamic ethical principles—such as amanah (trust), maslahah (public interest), and ʿadl (justice)—and modern risk frameworks emphasizing transparency, accountability, and internal controls. However, contextual barriers including lack of standardized regulations and limited stakeholder capacity inhibit optimal implementation.  This research contributes to the scholarly discourse by offering a governance model that synthesizes Islamic normative principles with modern risk management frameworks. It also provides actionable insights for policymakers and stakeholders aiming to enhance sustainability and compliance in IMFIs.