Kanadia Putri Morisca, Evi Mutia, Indayani, Maya Febrianty Lautania
This study aims to evaluate asset quality as a determinant of financial sustainability in Islamic Rural Banks (BPRS) in Indonesia. Asset quality, represented by NonPerforming Financing (NPF), is a critical factor influencing profitability, efficiency, and institutional resilience. Using a descriptive quantitative approach, this study analyzes secondary data from the Financial Services Authority (OJK), annual reports of selected BPRS, and related empirical literature covering the period from 2020 to 2024. The analysis identifies how NPF levels affect financial sustainability indicators, namely Return on Assets (ROA) and Operating Cost to Operating Income (BOPO). The results reveal that the financial sustainability of BPRS remains weak due to increasing NPF ratios that exceeded 10 percent in 2023, reducing income generating capacity and weakening profitability. Inefficient operations, limited digital innovation, and weak credit risk management further exacerbate the problem. The findings highlight the importance of strengthening governance, implementing risk-based financing strategies, and enhancing digital monitoring systems to improve asset quality and sustainability. This study offers originality by focusing exclusively on asset quality as a key determinant of financial sustainability and integrating the perspective of maqashid shariah, which emphasizes the protection of wealth (hifz al mal) and the promotion of public welfare through sustainable and ethical financial practices in Islamic microfinance institutions. © 2025 IEEE.
Universitas Syiah Kuala, Departement of Accounting, Banda Aceh, Indonesia
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