THE ROLE OF SHARIA FINANCIAL INSTITUTIONS IN SUPPORTING MSME EMPOWERMENT THROUGH WAQF FINANCING SCHEMES
Indonesia 
United Arab Emirates United Arab Emirates 
Abstract
Micro, small, and medium enterprises often face limited access to affordable capital, managerial assistance, and sustainable market opportunities, creating a need for inclusive financing models grounded in Islamic social finance. This study aimed to examine the role of Sharia financial institutions in empowering MSMEs through productive waqf financing schemes and to assess the mediating effects of financing effectiveness and business-development support. An explanatory sequential mixed-methods design combined survey data from 360 MSMEs and 72 institutional respondents with structural equation modeling, document analysis, interviews, observations, and comparative case studies. Results showed that institutional support significantly influenced MSME empowerment directly and indirectly through financing effectiveness and sustained business assistance. Mentoring, monitoring, market facilitation, digital support, and Sharia governance produced stronger effects than financing amount alone. Beneficiary enterprises experienced improvements in revenue, productive assets, employment, financial recordkeeping, digital sales, market reach, and business continuity. Strong governance enhanced transparency, repayment discipline, beneficiary trust, and preservation of waqf assets. The study concludes that productive waqf generates sustainable MSME empowerment when Sharia financial institutions integrate affordable financing with professional mentoring, accountable governance, risk management, digital transformation, and market access within a coordinated institutional ecosystem that preserves endowed capital while expanding long-term socioeconomic benefits for vulnerable communities.
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