Ikatan Ahli Ekonomi Islam

Portfolio and Default Risk of Islamic Microfinance Institutions By: Dr. Luqyan Tamanni, MEc Editor: Ustaz Sofyan Kaoy Umar, MA, CPIF Abstract Islamic microfinance is a growing sector that is expected to provide a long-term solution to poverty in the Muslim world. The role of microfinance institutions in poverty alleviation is still debatable, however, established literature provides assurance that microfinance does contribute to the development of the financial sector and reduction of poverty in developing countries. The rise of competition in the microfinance sector has forced many microfinance institutions to resort to commercial funding and lending activities, which according to some studies has led microfinance institutions to become riskier. The paper explores portfolio and default risk of Islamic Microfinance Institutions (IMFIs) and finds that they are facing relatively lower risks than conventional MFIs. Using Ordinary Least Squares regression to analyse port