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Purpose This study aims to explore the risk management practices of Islamic microfinance institutions (IMFIs) to increase their financial performance and sustainability. Design/methodology/approach This research used a qualitative approach to increase financial performance and sustainability. The study population comprised the Baitut Tamwil Muhammadiyah (BTM) in Central Java Province, Indonesia. The data collection techniques included questionnaires and an in-depth interview, and the framework was validated by the main participants. Findings This study showed that BTMs have implemented risk management using different standards. However, such risk management is carried out partially while prioritising certain risks and using different methods. The risk of Sharia compliance is the most recognised risk, while financing and operational risks are the most anticipated, because these two risk types directly impact financial performance and sustainability. In general, a risk management model can improve financial performance and sustainability. Nevertheless, there are obstacles in implementing risk management at BTMs, which include weak human resources, the employee selection process, human resource development and a good control system. Originality/value This research explored best practices for risk management in IMFIs and may contribute to the development of risk management in such institutions to maintain the financial performance and sustainability of their services.
Mutamimah et al. (Thu,) studied this question.