Keywords
MSME performance
Palopo City
Poverty alleviation
Sharia finance
How to Cite
Abstract
This study examines the effect of Islamic financial inclusion on poverty alleviation in Palopo City, Indonesia, with specific attention to the mediating role of Micro, Small, and Medium Enterprises (MSMEs). It addresses whether access to Sharia-compliant financial services can generate inclusive economic outcomes through MSME development in a secondary city context. A quantitative approach was used by surveying 100 MSME owners who utilize Islamic financial services in Palopo City. Respondents were selected through purposive sampling based on MSME registration, business experience, and use of Sharia financial products. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to test the direct and indirect relationships among Islamic financial inclusion, MSME performance, and poverty alleviation. The results show that Islamic financial inclusion has a positive and significant effect on poverty alleviation and MSME performance. However, MSME performance does not significantly affect poverty alleviation and does not mediate the relationship between Islamic financial inclusion and poverty alleviation. This indicates that Islamic financial inclusion may improve welfare directly, but MSME growth alone is insufficient to translate financial access into poverty reduction. This study contributes to Islamic finance and development economics by challenging the assumption that financial inclusion automatically reduces poverty through MSME performance. Focusing on Palopo City, it provides micro-level evidence that Sharia financial inclusion requires complementary business capacity, market access, and institutional support to become an effective poverty alleviation strategy.
References
Abisuga-Oyekunle, O.A., Patra, S.K., & Muchie, M. (2020). SMEs in sustainable development: Their role in poverty reduction and employment generation in sub-Saharan Africa. African Journal of Science, Technology, Innovation and Development, 12(4), 405–419. https://doi.org/10.1080/20421338.2019.1656428
Adviento, ENR, Bumanlag, CLDC, Fajarito, SRC, & Camaro, PJC (2022). Philippine MSMEs - Impact on Sustainable Economic Development in Employment Generation, Income Inequality, and Poverty. UJoST- Universal Journal of Science and Technology, 1(2), 222–262.
Ahmed, V., Wahab, M. A., & Mahmood, H. (2019). Effectiveness of HRD for developing SMEs in South Asia. SAARC Human Resource Development Centre., 30780, 1–92. https://mpra.ub.uni-muenchen.de/30780/
Anwar, V., & Hamid, S. (2019). The Role Of Entrepreneurship In Reducing Poverty Through Islam Perspective. Hasanuddin Economics And Business Review, 2(3), 187–199. Https://Doi.Org/10.26487/Hebr.V2i3.1546
Akhtar, Z. (2020). Global Findex Database 2014 – measuring financial inclusion around the world (Issue August 2015). https://www.bis.org/review/r150821c.pdf
Azunu, R., & Mensah, J. K. (2019). Local economic development and poverty reduction in developing societies: The experience of the ILO decent work project in Ghana. Local Economy, 34(5), 405–420. https://doi.org/10.1177/0269094219859234
Bello, S. A. (2022). Bank of Industry micro, small and medium enterprises financing and poverty reduction in north-central Nigeria. Journal of Global Economics and Business, 3(8), 1–18. https://doi.org/10.31039/jgeb.v3i8.38
Ben Abdelkader, I., & Mansouri, F. (2019). Performance of microfinance institutions in the MENA region: a comparative analysis. International Journal of Social Economics, 46(1), 47–65. https://doi.org/10.1108/IJSE-06-2017-0242
Brown, R., & Ledermann, S. (2023). Determinants of poverty reduction for smallholder farmers in Siem Reap Province, Cambodia. Canadian Journal of Development Studies. doi: 10.1080/02255189.2023.2207815%0A
Chen, W., & Yuan, X. (2021). Financial inclusion in China: an overview. Frontiers of Business Research in China, 15(1). https://doi.org/10.1186/s11782-021-00098-6
Dossou, TAM, & et al. (2021). Exploring the linkage between tourism, governance quality, and poverty reduction in Latin America. Tourism Economics, 29(1). https://journals.sagepub.com/doi/abs/10.1177/13548166211043974
Emenike, C. (2023). The Role of Small Scale Business in the Increase of Poverty in Finland (Issue March) [Centria University of Applied Sciences]. https://www.theseus.fi/bitstream/handle/10024/794628/Emenike_Catherine.pdf?sequence=2
Essel-Gaisey, F., & Chiang, T. F. (2022). Turning the tide on environmental poverty in Ghana: Does financial inclusion matter? Sustainable Production and Consumption, 33, 88–100. https://doi.org/10.1016/j.spc.2022.06.018
Handayani, PW, Nasrudin, R., & Jahen Fachrul Rezki. (2023). Reliable Electricity Access, Micro-Small Enterprises, and Poverty Reduction in Indonesia. In Bulletin of Indonesian Economic Studies. https://www.tandfonline.com/doi/full/10.1080/00074918.2023.2175782?scroll=top&needAccess=true&role=tab
Holle, M. H. (2016). Financial Inclusion; Poverty Alleviation Solutions for the Nation's Economic Competitiveness. Journal of Islamic Economics And Business (JIEB), 01(02), 1–14. https://jurnal.iainambon.ac.id/index.php/amal/article/download/1257/746
Khan, N., Zafar, M., Okunlola, A. F., Zoltan, Z., & Robert, M. (2022). Effects of Financial Inclusion on Economic Growth, Poverty, Sustainability, and Financial Efficiency: Evidence from the G20 Countries. Sustainability (Switzerland), 14(19). https://doi.org/10.3390/su141912688
Khan, Z., Haouas, I., Trinh, H.H., Badeeb, R.A., & Zhang, C. (2023). Financial inclusion and energy poverty nexus in the era of globalization: Role of composite risk index and energy investment in emerging economies. Renewable Energy, 204(January), 382–399. https://doi.org/10.1016/j.renene.2022.12.122
Kouadio, H.K., & Gakpa, L.L. (2022). Do economic growth and institutional quality reduce poverty and inequality in West Africa? Journal of Policy Modeling, 44(1), 41–63. https://doi.org/10.1016/j.jpolmod.2021.09.010
Lee, C.C., Lou, R., & Wang, F. (2023). Digital financial inclusion and poverty alleviation: Evidence from the sustainable development of China. Economic Analysis and Policy, 77, 418–434. https://doi.org/10.1016/j.eap.2022.12.004
Liu, L., & An, S. (2023). Deindustrialization and the incidence of poverty: Empirical evidence from developing countries. Technological Forecasting and Social Change, 187(November 2022), 122202. https://doi.org/10.1016/j.techfore.2022.122202
Liu, M., Feng, X., Wang, S., & Qiu, H. (2020). China's poverty alleviation over the last 40 years: successes and challenges. Australian Journal of Agricultural and Resource Economics, 64(1), 209–228. https://doi.org/10.1111/1467-8489.12353
Manzoor, F., Wei, L., Nurunnabi, M., & Subhan, Q.A. (2019). Role of SMEs in poverty alleviation in SAARC Region via Panel data analysis. Sustainability (Switzerland), 11(22), 1–14. https://doi.org/10.3390/su11226480
Maouloud, V.M., Kassim, S., & Othman, AHA (2023). Impact of Financial Inclusion on Poverty Through Islamic Microfinance in Mauritania. IGI Global Publishing Tomorrow's Research Today, 12. https://www.igi-global.com/chapter/impact-of-financial-inclusion-on-poverty-through-islamic-microfinance-in-mauritania/314779
Marcus Garvey Orji, Kizito Olaniy, & Timothy Adeyemo. (2022). Assessing Micro, Small and Medium Enterprises as an Instrument for Human Capital Development and Poverty Reduction in Abuja Area Councils of Nigeria. Economist Journal: Scientific Journal of Accountancy, Management and Finance, 2(2), 94–105. https://doi.org/10.33258/economit.v2i2.658
Muhammad, Makhdum, N., Kassim, SB, & Mahadi, Nur Farhah Bint Ali, ERABE (2023). Role of Islamic Microfinance in Enhancing Financial Inclusion in Bangladesh: A Systematic Literature Review. In Islamic Sustainable Finance, Law and Innovation (pp. 105–116). https://link.springer.com/chapter/10.1007/978-3-031-27860-0_9#citeas
Mujiatun, S., Trianto, B., Cahyono, EF, & Rahmayati. (2023). The Impact of Marketing Communication and Islamic Financial Literacy on Islamic Financial Inclusion and MSMEs Performance: Evidence from Halal Tourism in Indonesia. Sustainability, 15(13), 9868. https://doi.org/10.3390/su15139868
Mukhlis, M., Robiani, B., & Atiyatna, DP (2021). Potential Agglomeration of Small Food Industry in Palembang, South Sumatra Indonesia. International Journal of Economics and Financial Issues, 11(3), 28–34. https://doi.org/10.32479/ijefi.11300
Nabil, M., & Herianingrum, S. (2022). Financial Inclusion of Sharia Banking and Poverty 33 Provinces in Indonesia. Scientific Journal of Islamic Economics, 8(2), 1549–1554. http://dx.doi.org/10.29040/jiei.v8i2.5755
Ngepah, N., Makgalemele, T., & Saba, CS (2023). The relationship between education and vulnerability to poverty in South Africa. Economic Change and Restructuring, 56(1), 633–656. https://doi.org/10.1007/s10644-022-09439-8
Nursini, N. (2020). Micro, small, and medium enterprises (MSMEs) and poverty reduction: empirical evidence from Indonesia. Development Studies Research, 7(1), 153–166. https://doi.org/10.1080/21665095.2020.1823238
Ozturk, I., & Ullah, S. (2022). Does digital financial inclusion matter for economic growth and environmental sustainability in OBRI economies? An empirical analysis. Resources, Conservation and Recycling, 185(December 2021), 106489. https://doi.org/10.1016/j.resconrec.2022.106489
Qamruzzaman, M., Karim, S., & Kor, S. (2023). Does environmental degradation matter for poverty? Clarifying the nexus between FDI, environmental degradation, renewable energy, education, and poverty in Morocco and Tunisia. Environmental Science and Pollution Research, 30(February), 52872–52894. https://link.springer.com/article/10.1007/s11356-023-25954-1
Ratnawati, K. (2020). The Impact of Financial Inclusion on Economic Growth, Poverty, Income Inequality, and Financial Stability in Asia. The Journal of Asian Finance, Economics and Business, 7(10), 73–85. https://doi.org/10.13106/jafeb.2020.vol7.no10.073
Tamanni, L., & Haji Besar, M.H.A. (2019). Profitability vs Poverty alleviation: has banking logic influenced Islamic microfinance institutions? Asian Journal of Accounting Research, 4(2), 260–279. https://doi.org/10.1108/AJAR-05-2019-0039
Usman, M., Makhdum, MSA, & Kousar, R. (2021). Does financial inclusion, renewable and non-renewable energy utilization accelerate ecological footprints and economic growth? Fresh evidence from 15 highest emitting countries. Sustainable Cities and Society, 65(July 2020), 102590. https://doi.org/10.1016/j.scs.2020.102590
Wijaya, IF, Hakim, AR, Saputro, N., & Mulyadi, M. (2020). Religiosity level and saving decisions in Baitul Maal wat Tamwil: the case of Indonesia. Journal of Islamic Marketing, 11(6), 1465–1483. https://doi.org/10.1108/JIMA-09-2018-0160
Zhu, D., Jia, Z., & Zhou, Z. (2021). Place attachment in the Ex-situ poverty alleviation relocation: Evidence from different poverty alleviation migrant communities in Guizhou Province, China. Sustainable Cities and Society, 75(September), 103355. https://doi.org/10.1016/j.scs.2021.103355
This work is licensed under a Creative Commons Attribution 4.0 International License.
Copyright (c) 2026 Hasanuddin Economics and Business Review