RISK MANAGEMENT FRAMEWORKS IN ISLAMIC MICROFINANCE: A PATHWAY TO FINANCIAL STABILITY IN HUMANITARIAN CRISIS SITUATIONS

Abstract

Humanitarian crises such as pandemics, natural disasters and conflicts have had a significant impact on the sustainability of Islamic microfinance institutions. MFIs face credit, liquidity, operational and Shariah compliance risks that threaten their financial stability as their financing focus is on the vulnerable. This article explores a risk management framework that can support the stability of MFIs during times of crisis, highlighting the role of Islamic social finance instruments such as zakat and waqf in supporting risk management. Through a literature review, this article reviews risk identification, measurement, mitigation and monitoring strategies relevant to MFIs. The results show that the integration of zakat and waqf can provide liquidity reserves and help customers affected by the crisis, resulting in reduced financial burden for MFIs. Collaboration between MFIs and social financial institutions can also strengthen the resilience of MFIs in facing crisis and ensure the distribution of assistance in accordance with sharia principles. This study recommends strengthening strategic collaboration and improving risk management capacity through training and diversification. Thus, an effective risk management framework and the integration of Islamic social finance prove to be important in maintaining the sustainability and stability of MFIs and enabling MFIs to support community economic recovery during and after the crisis.