RISK GOVERNANCE GAPS AND THE DOWNFALL OF RURAL BANKS IN INDONESIA: AN FMEA-BASED ASSESSMENT ALIGNED WITH ISO/IEC 31010 Oswald Timothy Edward, Aloysius Harry Mukti
Universiti Teknologi MARA Malaysia
Abstract
This study examines the risk governance failures that led to the collapse of People^s Credit Banks (Bank Perkreditan Rakyat, or BPR) in Indonesia. Utilizing the Failure Mode and Effects Analysis (FMEA) approach based on the ISO/IEC 31010:2019 standard, the study identifies and prioritizes the most critical types of governance failures by assessing their severity, likelihood of occurrence, and detectability. The FMEA analysis reveals that failures in credit analysis and weak oversight by the board of directors scored the highest Risk Priority Numbers (RPNs). Additionally, failures in credit diversification, liquidity fulfillment, internal auditing, and compliance reporting were also found to be significant contributing factors. The findings assert that the collapse of these banks was not merely the result of external shocks but rather reflected systemic weaknesses in risk governance. The study highlights the urgent need for a more structured and integrative risk-based governance approach, along with the implementation of diagnostic tools such as FMEA in microbanking practices. This research contributes to the development of a more contextual and adaptive risk governance model for the People^s Credit Bank sector in Indonesia.
Keywords: Risk Governance Failure Mode and Effects Analysis (FMEA) People^s Credit Bank (BPR) Microbanking ISO/IEC 31010:2019
