Abstract

Both micro and small enterprises (MSEs) can drive economies to growth and eradicate poverty, but 
numerous challenges challenge their finances. The principles of Islamic finance, with other-centered 
equity, ethical quality, and risk-sharing, have the potential to considerably benefit MSE development 
and commercialization as compared to conventional systems. This review systematically analyzes 
existing literature relating Islamic finance principles to MSE performance based on the synthesis of 
work conducted in Uganda, Oman, Indonesia, and Nigeria with an objective of identifying the gaps 
to be covered by the preceding empirical study using a qualitative approach. The findings show a positive relationship between the application of mechanisms of Islamic finance, including profit
sharing, interest-free financing, and partnership-based models, and the business performance 
indicators of profitability, revenue growth, and sustainability. However, the review pinpointed major 
gaps in available research, including a constricted geographical cover, a small sample size of 
enterprises, and inadequate gender-dimensional exploration. Further, some inherent methodological 
inconsistencies, such as ambiguous performance indicators and sampling biases, additionally 
hamper the generalization of findings. To overcome such gaps, this study suggests that research 
should be extended into the rural and less-represented regions, should explore gender issues, and 
should use more solid methodological approaches. This would enable researchers, policy-makers, 
and financing bodies to appreciate and utilize the very full potential of the principles of Islamic 
finance in empowering MSEs to promote inclusive economic development.