Sharia Economy, Islamic Financial Performance and Factors That Influence It—Evidence from Indonesia

Round 1

Reviewer 1 Report

I like this paper.  Its results are noteworthy and publishable if somewhat limited in that they relate to one city in Indonesia over a relatively short period of time.  The authors note the limitations. In my view, they do not prevent the paper from being of publishable quality.  

I'd probably reformulate the abstract and beginning of the introduction. The first sentence of the abstract is clunky and does not really get across the contribution. The real contribution is an analysis of the factors that contribute to the flourishing sharia compliant SME's, in keeping with the state's goal of building a stronger shari'a economy. The specific factors considered can come in subsequent lines/paragraphs.  

Author Response

Thank you very much for the support and review

We have added one sentence as a contribution at the beginning of the abstract.

"The contribution of SMEs to economic growth is supported by the development of the sharia economy by the government, making SMEs one of the main pillars in Indonesia's economic development."

We have also added one sentence for specific factors to be considered in strengthening the Islamic economy and the financial performance of SMEs.

"... including strengthening the digital economy based on sharia, Islamic financial literacy, improving the quality of human capital who cares about digital and sharia compliance and increasing the role of Islamic financial institutions and support of the government."

 

Author Response File: Author Response.pdf

Reviewer 2 Report

I would like to thank the authors for this research that aims to to revitalize the Sharia economy and improve the financial performance of SMEs, this study focuses on the formulation of the following problems: (1) How do financial literacy and innovation improve the Islamic financial performance of SMEs? (2) What is the role of economic digitalization in spurring the strengthening of the Sharia economy? (3) How is the capacity of human resources, the role of Islamic financial institutions, and government support in improving the Islamic financial performance of SMEs and the strengthening of the Sharia economy.

The research subject is timely, innovative, and interesting. It also fits the aim and scope of the journal.

The research is well designed and follows a sound scientific research method.

Results and recommendations are clear and could have an impact among the community of researchers.

However, some modifications are needed in order to improve the quality of the paper.

You need to proof read your manuscript as several typos and sentence structure were detected.

In the context of your research, it would be better and more appropriate to talk about human capital (See Gary Becker Nobel price of economy). I suggest that you change human resource by human capital.

Halal / Sharia: As this is an Arabic word, you need to explain it to readers that hasn’t knowledge about the subject. I know its meaning but you need to explain it for readers.

Page 3 I encourage you to also cite this research that highlighted the importance of technological development and innovation in insuring entrepreneurship and SME’s resilience and prosperity. https://doi.org/10.1016/j.jik.2022.100234

Page 3: You are also encouraged to refer to this research that discussed the impact of innovation on increasing productivity and Islamic financial performance of SME’s and entrepreneurs. https://doi.org/10.1504/IJBPM.2022.119551

Section 4. the title results is more appropriate that empirical study.

Bibliography:

Check references that are cited twice:

Pu, Ganlin; Qamruzzaman, Md.; Mehta, Ahmed Muneeb; Naqvi, Farah Naz; Karim, Salma. (2021). Innovative Finance, Technological Adaptation and SMEs Sustainability: The Mediating Role of Government Support during COVID-19 Pandemic. Sustainability. 13, 9218. https://doi.org/10.3390/su13169218

Pu, Ganlin; Qamruzzaman, Md.; Mehta, Ahmed Muneeb; Naqvi, Farah Naz; Karim, Salma. (2021). Innovative Finance, Technological Adaptation and SMEs Sustainability: The Mediating Role of Government Support during COVID-19 Pandemic. Sustainability, 13, 9218. https://doi.org/10.3390/su13169218

Surya, B.; Menne, F.; Sabhan, H.; Suriani, S.; Abubakar, H.; Idris, (2021). M. Economic Growth, Increasing Productivity of SMEs, and Open Innovatioan. J. Open Innov. Technol. Mark. Complex., 7, 20; https://doi.org/10.3390/joitmc7010020

Surya, Batara., Menne, Firman., Sabhan, Hernita., Suriani, Seri., Abubakar, Herminawaty., Idris, Muhammad. (2021). Economic Growth, Increasing Productivity of SMEs, and Open Innovation. J. Open Innov. Technol. Mark. Complex., 7, 20. https://doi.org/10.3390/joitmc7010020

References: You need to add recent references. Some useful ones are suggested.

Other minor comments are directly attached to the manuscript.

Comments for author File: Comments.pdf

Author Response

Thank you very much for the support and review.

We have revised according to the suggestions (see the revision that we attached in this form) 

Example; 

Becker, Gary S. (1994). Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, The University of Chicago Press; https://www.nber.org/books-and-chapters/human-capital-theoretical-and-empirical-analysis-special-reference-education-third-edition.  Accessed on 08 March 2023.

We have added explanations related to the word “halal” and “sharia”.

We have added the definition of halal on page 1 paragraph 1 last line. Halal in Arabic means that which is lawful, permissible, approved, and legal; the opposite of halal is haram, which means prohibited or forbidden (Abdallah, 2021).

We have added the definition of sharia on page 2, 2nd paragraph, line 11 (after an explanation related to the definition of sharia SMEs). The meaning of the word sharia is Sharia is the rule by which the Muslim world is governed (or should govern itself) and forms the basis for the relationship between humans and God, between individuals, whether Muslim or non-Muslim, and between humans and the things that are part of creation (Bassiouni, M. Cherif. 2012. Islamic Law- The Shariah. The Middle East Institute; https://www.mei.edu/publications/islamic-law-shariah, accessed 06 March 2023.)

We have added research conducted by Messabia et al (2022) which examined the efforts of SMEs in the Outaouais Region, Canada to overcome the crisis during the COVID-19 crisis, where to overcome this problem entrepreneurs showed resilience, innovation, strategic management funds and support from the Canadian government to SMEs through its assistance programs. (Messabia, Nabil., Fomi, Paul-Rodrigue., Kooli, Chokri. (2022). Managing restaurants during the COVID-19 crisis: Innovating to survive and prosper. Journal of Innovation & Knowledge. Volume 7, Issue 4, 2022; https://doi.org/10.1016/j.jik.2022.100234)

We have added it to the script.... In an effort to increase the role of Islamic financial institutions, Kooli et al., (2022) stated in their research results that Islamic financial institutions can develop several financing schemes that can assist SMEs in obtaining easy access and funding assistance, as well as making innovation efforts to have an impact on increasing productivity and Islamic financial performance of SMEs. (Kooli, Chokri., Shanikat, Mohammed., Kanakriyah, Raed. (2022). Towards a new model of productive Islamic financial mechanisms. Int. J. Business Performance Management, Vol. 23, Nos. 1/2, 2022; https ://doi.org/10.1504/IJBPM.2022.119551

Section 4. Results as suggested.

We have removed references that were cited twice

We have added some suggested articles and attached in the manuscript

 

 

Author Response File: Author Response.pdf

Reviewer 3 Report

1. What is the difference between shariah economy and shariah economic?

 

It is stated in 4.1 Determinants of Strengthening Sharia Economy and Financial Performance, but then

The Strengthening sharia economic has been marked by the rapid development of sharia economics and finance in the last two decades, both in global and national contexts.

2. Under 3.4 Research Respondents: The selected respondents are samples from the SMEs population in Makassar City which is obtained by using probability technique by providing equal opportunities to all SMEs in Makassar City. The probability of the sample using the purposive sampling method is measured based on certain criteria that are considered representative of the entire population.

What type of sampling method is used, if it is purposeful, can the finding be generalised?

3. The questionnaire/instrument should be enclosed to see the reliability and validity of the question.

4. Y2 (Sharia Economy) which is measured by indicators; strengthening aspects of legality, coordinating the sharia economy, the concept of halal living, and strengthening the halal industry.- How are these measured by/for the SME? These indicators are more relevant for a macro study rather than a micro study. How will these variables differ for the different SME?

5. X1 (Digital Economy) as measured by indicators; digitalization, virtualization, molecularization, disintermediation. These indicators are more suitable compared to (4) above, but how are they measured?

6. X4 (The Role of Islamic Financial Institution) as measured by indicators; ease of access, capital assistance similar to (4) these indicators are related to macroeconomic variables. What does it mean by ease of access, are different SME have different level of access, or is it just opinion of SME with regards to its ability to access financial products? It is expected that all SME will have similar access to capital and government assistance.

7. X5 (Government Support) as measured by several indicators, such as; determination of policies, guidance and development, and provision of facilities.- How does individual SME affect these variables?

Author Response

1. What is the difference between shariah economy and shariah economic?

The term "Sharia economy" generally refers to an economic system that is based on Islamic principles and values, including ethical and moral considerations. This may include aspects such as interest-free financing, profit-sharing, and avoiding investments in industries that are considered harmful to society, such as gambling or alcohol production.

On the other hand, "Sharia economic" typically refers to the study or analysis of Islamic economics and its principles, which include the concepts of zakat (charitable giving), riba (usury), and the prohibition of gambling and speculation. It involves examining how economic activities can be conducted in accordance with Islamic principles and values.

Based on the definition above, we take the term "sharia economy" as the title and topic of this paper, although sometimes we also mention economy as an attribute in the context of the sentence.

We have revised the sentence formulation in sub-chapter 4.1. What we actually mean is that Islamic economics and finance has increased so that it needs to be strengthened.

"The development of Islamic economics and finance has increased in the last two decades, both in a global and national context".

2. Thank you for the correction, what we actually mean is that the sampling technique is intended to obtain a proportional sample, namely a sample that can truly understand the focus and objectives of the research to be achieved so that we take into account the characteristics of existing and developing SME businesses in Makassar City. So we have revised it according to the aims and objectives of this proportional sampling.

“The selected respondents were a sample of the UKM population in Makassar City which was obtained using a proportional sampling technique which was considered to be able to understand the focus of the research and the goals to be achieved well and pay attention to the characteristics of the businesses developed by UKM in Makassar City”

Figure 3 for Number of Respondents, we can see the Author's elaboration in the attachment in this form

3. The questionnaire is attached at the end of this answer.

4. The assessment is based on the perception of MSMEs in assessing Islamic economic indicators which are based on the implementation of the Islamic economic master plan by the government. This assessment is based on Islamic economic indicators, namely in terms of strengthening legal aspects, sharia economic coordination, the concept of a halal lifestyle, and strengthening the halal industry. Questions can be seen in the questionnaire

5. Digital economy variables are measured using digitization, virtualization, molecularization, disintermediation indicators. These indicators are measured by asking all respondents questions related to their understanding and experience related to the digital economy, such as respondents' understanding related to the ease of conducting digital-based transactions, the role digital in saving time, effort and costs, involving respondents in digital-based financial transactions as well as obstacles in utilizing the digital economy. This digital economy is a technological transformation in carrying out transactions and economic activities. This variable is measured to assess its influence related to Islamic economic activity. It has been understood so far that the Islamic economy can grow and develop with various technological devices such as financial technology (fintech), other financial applications and even the use of social media, which in this study will examine the impact on the Islamic economy and improving the financial performance of SMEs.

6. The Variable Role of Islamic Financial Institutions is also measured based on the perceptions of SMEs actors with two indicators namely ease of access and capital assistance. These two indicators were asked of each respondent to obtain an assessment of ease of access and capital assistance. Ease of access is intended as a situation where Islamic financial institutions provide convenience in accepting SMEs as customers or partners to visit and communicate in terms of finance and capital assistance. While the second indicator, capital assistance, means that Islamic financial institutions play a role in providing convenience in providing financing or capital assistance with sharia-compliant schemes to customers.

7. The government support variable is actually measured by several indicators that show respondents' perceptions related to government involvement in strengthening the sharia economy, which are then translated into indicators namely (1) determining policies intended as government support in the form of regulations and policies such as the issuance of Law no. 33 of 2014 concerning halal product guarantees, and creating conducive conditions for the growth and development of sharia-based economic businesses, (2) Guidance and development can be felt by SMEs players in the form of socialization of the sharia economy, providing training and training on the use of digital economy and so on.

Author Response File: Author Response.pdf

Reviewer 4 Report

Abstract must include the sampling method.

define sharia economy and its objectives and link it with role of SMEs in it, in the introduction.

research design does not clarify what is the sampling method used, why this sample size, its justification is also absent. Author have mentioned that it is probability technique but then used purposive sampling, which means that data is not probablistic, there is no equal opportunities. 

how did the author achieve the face and content validity, it is not discussed. from there the scales are adopted must be clarified (so that the ethical concert is cleared), did they used this scale for similar context and similar economic conditions?

Author Response

1. We have revised it in Abstract as suggested

2. We have revised it and added the definition of sharia on page 2, 2nd paragraph, line 11 (after an explanation related to the definition of sharia SMEs). The meaning of the word sharia is Sharia is the rule by which the Muslim world is governed (or should govern itself) and forms the basis for the relationship between humans and God, between individuals, whether Muslim or non-Muslim, and between humans and the things that are part of creation (Bassiouni, M. Cherif. 2012. Islamic Law- The Shariah. The Middle East Institute; https://www.mei.edu/publications/islamic-law-shariah, accessed 06 March 2023.)

3. This technique is intended to obtain a proportional sample that truly understands the focus and objectives of the research to be achieved and takes into account the characteristics of existing and developing SME businesses in Makassar City.

   The selected respondents were a sample of the UKM population in Makassar City which was obtained using a proportional sampling technique which was considered to be able to understand the focus of the research and the goals to be achieved well and pay attention to the characteristics of the businesses developed by UKM in Makassar City (Figure number of respondents can be seen in the attachment to this form)

4. We have clarified at the end (paragraph 3) of the discussion, with the following statement;

   However, this research is oriented towards the study of Islamic economics which is linked to the use of digital economy, financial literacy, human capital and government support, especially the Indonesian government, so that the validity of this context will correspond to the realm of areas that also adopt the application of Islamic economics. However, it will be different if the context is different from the implementation of sharia economic studies.

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

I would like to thank you for making the necessary changes.