This paper investigates risk mitigation practices and alternative measures for non-performing financing in sharia rural banks (BPRS) in Indonesia. Using in-depth interviews with Islamic microfinance practitioners who are expert in the area, this study explores two categories of financing which are equity financing (mudharabah and musyarakah) and debt financing (murabahah). The mechanism will advise on the themes of equity financing, debt financing, risk identification and mitigation, risk appraisal, risk control and monitoring, and digital systems. Interviews were conducted at 6 BPRS in West Java and Banten, Indonesia. The data will inform researchers about success stories of equity and debt financing by implementing risk mitigation to reduce the magnitude of the risk of each financing and alternative steps to mitigate non-performing financing. The results show that BPRS prefer musyarakah financing for equity over mudharabah, because they consider mudharabah to be riskier. For debt financing, all BPRS apply murabahah financing. Risk mitigation is carried out properly, starting from analyzing the client’s credit history to assessing the required collateral. In the event of non-performing financing, the BPRS first assesses the source of the problem and the BPRS provides easy payments to clients through relaxation and restructuring. The digital system also plays an important role in mitigating BPRS risk and facilitating client access to BPRS.
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