This study aims to investigate the effect of capital structure decisions on the financial sustainability of Islamic rural banks (BPRS) in Indonesia through the contribution of non-profit sharing financing (murabahah). Researchers exposed secondary data from Islamic Banking Statistics, the Financial Services Authority (OJK) and analyzed using a two-stage regression technique during 2014–2022. The findings show that murabaha contributes 77.9% of total BPRS financing and is proven to influence capital structure and financial sustainability positively and significantly. Meanwhile, from a sustainability perspective, BPRS Indonesia has proven to be operationally sustainable, but not financially sustainable. This study supports the trade-off theory and encourages BPRS to carry out alternative strategies other than debt, for example, BPRS can optimize production sharing financing through mudharabah and musyarakah contracts and still accommodate profits through other instruments. This study contributes to the literature especially on financing structures in Islamic microfinance institutions and highlights the issue of financial sustainability, as well as practical implications for managers, micro-entrepreneurs, and regulators. Managers are expected to have the best capital structure design so that they can increase the profitability and sustainability of the institution, while entrepreneurs are expected to use BPRS as a means of investment and to fund their business. Regulators, especially the Sharia Supervisory Board (DPS) are encouraged to carry out sharia compliance assessments and be open to innovation and engineering of financial products to suit the needs of society.