Rina Asmeri

Type of the article: Research Article

Abstract
The intersection of Sharia governance practices and Islamic microfinance institutions’ (IMFi) financial resilience in Indonesia is critical to understand, especially given the unique nature and growing importance of Sharia-compliant financial systems in modern economies. This study examines the relationship between Sharia governance practices and IMFi’s financial resilience in Indonesia. The exploratory factor analysis and a Partial Least Squares Structural Equation Model were employed. The results of the exploratory factor analysis identified three distinct components of financial resilience for IMFi: financial performance reflecting the institution’s profitability and efficiency; financial adaptability, indicating its capacity to adjust to economic changes and shocks; and financial robustness, measuring the strength of its capital base and risk management systems to absorb losses. Structural equation modeling using Partial Least Squares reveals a complex relationship between Sharia governance practices and financial resilience; specifically, a strong Sharia governance framework and an institution’s transparency and confidentiality were found to have a significant positive impact on overall financial resilience. Rigid consistency procedures and a more prominent role of the Sharia board were unexpectedly found to negatively influence financial resilience, suggesting that excessive procedural rigidity or overly conservative board oversight might hamper an institution’s ability to respond flexibly to financial challenges. The findings extend contingency- and resource-based theory by evidencing the differential impact of sharia governance practices on financial resilience. This study recommends that managers prioritize transparent reporting systems and regulators mandate a clear governance structure for Indonesia’s Islamic microfinance institutions.

Acknowledgment
The authors gratefully acknowledge the support of the Ministry of Higher Education, Research, and Technology of the Republic of Indonesia for providing the necessary research funding (SP DIPA-0139.04.1.693320/2025 and Contract number: KPt/001/LPPM-UNES/VI/2025).