Unlocking Islamic Finance and Entrepreneurship with Innovative Solutions

Abstract

This paper aims to examine the role of Islamic finance and technology in unlocking the potential of MSMEs. In recent years Islamic finance has enjoyed rapid growth, but several challenges remain. Data show significant unmet demand for Shariah-compliant financial services, particularly among micro-small and medium-sized enterprises (MSMEs). To fill this financing gap, Shariah-compliant products offered to MSMEs are mostly leasing and asset resale arrangements, with very little application of profit and loss sharing contracts. This paper employs a qualitative research method to look at the role of Islamic finance in unlocking the potential of MSMEs. In addition, the emergence of Financial Technology (Fintech) has given the Islamic financial system an impetus to compete on an equal footing with the conventional system and prove itself. This study will examine the role of Islamic finance in recovery post-COVID-19 and how Fintech can be utilized to combat the economic repercussions that resulted from COVID-19. In addition to other existing articles, this paper suggests that combining the principles of Islamic finance, the advancements in technology, and Fintech represents an opportunity to significantly contribute to the enhancement of the entrepreneurial ecosystem in the Islamic world and the promotion of MSMEs segment development. This paper proposes using modern technology to unlock the potential of Islamic finance in contributing to entrepreneurship and MSME development. The findings of this study have significant implications for policymakers and governments, notably guidance on how to apply FinTech and effectively promote innovative Islamic financial services.