Prudential Principle Implementation for Mitigating Non-Performing Financing at BMT UGT Nusantara

Abstract

The development of Islamic microfinance institutions, particularly Baitul Maal wat Tamwil (BMT), has shown significant growth in supporting financing for micro-enterprises. However, BMTs continue to face challenges related to non-performing financing risks that can potentially disrupt the financial stability of the institution. This study aims to analyze the implementation of the prudential principle in minimizing non-performing financing risks at BMT UGT Nusantara Wongsorejo, Banyuwangi, and to identify the obstacles and solutions applied by the institution. This research employed a descriptive qualitative approach with data collection techniques including observation, in-depth interviews, and documentation. Data were analyzed through stages of data reduction, data presentation, and conclusion drawing, while data validity was ensured by source triangulation. The results indicate that BMT UGT Nusantara Wongsorejo applies the prudential principle through the 5C analysis approach, covering Character, Capacity, Capital, Collateral, and Condition. The main challenges identified in the implementation include stagnation of customers' businesses and low integrity of some customers in fulfilling their financing obligations. The solutions implemented comprise extending the repayment period, strengthening the institution’s social role through baitul maal functions, and persuasive approaches to maintain good relations with customers. This study recommends strengthening post-disbursement monitoring systems and providing continuous training for credit analysis officers as preventive measures against non-performing financing.