Legal aspects in managing non-performing loans in unsecured KUR micro at Bank Syariah Indonesia

The kafalah scheme serves as a risk mitigation mechanism widely applied in Islamic financing, particularly for unsecured Micro People’s Business Credit (KUR (Kredit Usaha Rakyat) Micro). This scheme involves guarantee institutions that assume responsibility for financing risks, reducing the financial burden on Islamic banks and facilitating access to credit for Micro, Small, and Medium Enterprises (MSMEs). Despite its advantages, challenges remain, particularly in terms of kafalah fees and delays in claim processing, which can impact its overall effectiveness. This study aims to analyze the role of guarantee institutions, the claim process, subrogation rights, and their implications for the financial stability of Islamic banks. Using a descriptive qualitative approach, the study finds that guarantee institutions play a strategic role by covering up to 70 % of financing risks, allowing Islamic banks to extend financing to a broader range of MSMEs. The subrogation rights ensure that debtors remain accountable for their obligations, preserving financial discipline within the system. Furthermore, the findings indicate that the kafalah scheme significantly reduces credit risk for Islamic banks while promoting financial inclusion. However, the study also highlights several challenges, including the complexity of the claim process, administrative inefficiencies, and potential financial burdens on banks due to delays in reimbursements. These factors necessitate a more efficient regulatory framework to enhance the scheme’s effectiveness. This research concludes that the kafalah scheme aligns with Maqasid al-Shariah, emphasizing fairness, financial justice, and asset protection, making it a critical tool for sustainable Islamic financing and inclusive economic growth. The study provides policy recommendations to improve the efficiency and accessibility of Islamic banking in addressing MSME financing needs while maintaining financial stability.