An analysis of islamic financial performance and contributing factors in indonesia’s sharia economic framework

Abstract

Small and medium-sized enterprises (SMEs) play a critical role in Indonesia’s economic growth, a role further strengthened by the government's push to advance the sharia economy. This study investigates how digital economic activity, financial literacy, human capital, Islamic financial institutions, and government support influence the development of the sharia economy and the financial performance of Islamic SMEs in Makassar City, Indonesia. Employing a quantitative research approach, the study collected data through surveys distributed to 350 respondents. The results indicate that human capital, Islamic financial institutions, and government support significantly affect both the empowerment of the sharia economy and the financial performance of SMEs. Specifically, these variables explain 58.5% of the variance in Islamic SME financial performance. Furthermore, they contribute to 71.6% of the variance in the growth of the sharia economy. The findings highlight the essential role of institutional support, capacity building, and policy initiatives in strengthening SME performance and promoting the broader sharia economy. Nonetheless, the research is limited to Makassar City, suggesting that future studies should expand to other regions in order to gain a more comprehensive national perspective on enhancing Islamic financial performance and sharia-based economic development throughout Indonesia.