Sharia compliance and competitive advantage in Small and Medium Enterprises: The mediating role of digital payment usage

Wira Ramashar; Saskia Khairunnisa

doi:10.18196/jai.v26i2.26654

Authors

Wira Ramashar Department of Accounting, Faculty of Economic and Business, Universitas Muhammadiyah Riau, Riau, Indonesia
Saskia Khairunnisa Department of Accounting, Faculty of Economic and Business, Universitas Muhammadiyah Riau, Riau, Indonesia

DOI:

https://doi.org/10.18196/jai.v26i2.26654

Keywords:

Sharia compliance, Religious Knowledge, Religious Motivation, Competitive Advantage, Digital Payment Systems, SMEs

Abstract

Research aims: This study aims to investigate the influence of religious knowledge, religious motivation, and Sharia compliance on competitive advantage among Small and Medium Enterprises (SMEs) in the coffee shop sector in Pekanbaru City, with digital payment system usage as a mediating variable.
Design/Methodology/Approach: Using a quantitative approach, data were collected from 147 coffee shop SMEs operating in Pekanbaru, Riau Province. Structural Equation Modeling (SEM-PLS) was employed to analyze the direct and indirect relationships among variables.
Research findings: The results indicate that religious knowledge, religious motivation, and Sharia compliance have a significant positive impact on both competitive advantage and the digital payment system usage. Furthermore, the digital payment system usage also significantly enhances competitive advantage. Sharia compliance also exerts an indirect effect on competitive advantage through the mediation of digital payment system usage.
Theoretical contribution/ Originality: This research extends the Resource-Based View (RBV) by positioning Sharia compliance as a unique, valuable, and inimitable resource that contributes to sustainable competitive advantage in the Islamic business context. It also highlights the strategic role of digital transformation in religiously motivated business ecosystems.
Practitioner/Policy implication: The findings provide valuable insights for policymakers and business practitioners on the importance of embedding religious and ethical values within strategic business practices, particularly in the halal food and beverage sector. Promoting digital adoption within a Sharia-compliant framework can enhance competitiveness among SMEs.
Research limitation/Implication: This study is limited to coffee shop SMEs in one city and does not account for variations in business scale or experience. Future research should explore other sectors and regions using mixed methods for deeper insights.

References

AL-Haija, E. A., & Syed, M. F. (2021). Impact of COVID-19 on United Arab Emirates Economy, Micro, Small and Medium Enterprises “MSMEs” and a Way Forward to Islamic Finance. GISRAS Journal of Management & Islamic Finance (GJMIF), 1(2).

AlBar, A. M., & Hoque, M. R. (2019). Factors affecting the adoption of information and communication technology in small and medium enterprises: A perspective from rural Saudi Arabia. Information Technology for Development, 25(4), 715-738. https://doi.org/10.1080/02681102.2017.1390437

Alharbi, R. K., Yahya, S. B., & Kassim, S. (2022). Impact of religiosity and branding on SMEs performance: does financial literacy play a role? Journal of Islamic Marketing, 13(12), 2717-2741. https://doi.org/10.1108/JIMA-08-2019-0162

Ali, N., Bakar, S. A., Isa, Z. M., Shaharruddin, S., Ahmad, F., & Jali, A. (2023). Shariah Compliance Online Business: An Insight into the Stages of Shariah Compliance Online Business. Global Business and Management Research, 15(1), 112-123.

Amalia, R., & Pratolo, S. (2024). Private Higher Education Intention in Adopting Blockchain Technology on Accounting Information System (AIS). Public Accounting and Sustainability, 1(2), 150-164. https://doi.org/10.18196/pas.v1i2.18

Amrullah, A., Nurbaeti, N., Ratnaningtyas, H., Asmaniati, F., & Osman, I. E. (2024). Strategy for The Development of Culinary Sector Entrepreneurs in The Cipondoh Lake Tourism Destination, Tangerang Regency, Banten Province. TRJ Tourism Research Journal, 8(2), 188-207. https://doi.org/10.30647/trj.v8i2.255

Dillman, D. A. (1978). Mail and telephone surveys: The total design method (Vol. 19). Wiley New York.

Fesharaki, F. (2019). Entrepreneurial passion, self-efficacy, and spiritual intelligence among Iranian SME owner–managers. Psychological Studies, 64(4), 429-435. https://doi.org/10.1007/s12646-019-00507-0

Fianto, B. A., Hendratmi, A., & Aziz, P. F. (2021). Factors determining behavioral intentions to use Islamic financial technology: Three competing models. Journal of Islamic Marketing, 12(4), 794-812. https://doi.org/10.1108/JIMA-12-2019-0252

Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of marketing research, 18(1), 39-50. https://doi.org/10.1177/002224378101800104

Hair, J. F., Astrachan, C. B., Moisescu, O. I., Radomir, L., Sarstedt, M., Vaithilingam, S., & Ringle, C. M. (2021). Executing and interpreting applications of PLS-SEM: Updates for family business researchers. Journal of Family Business Strategy, 12(3), 100392. https://doi.org/10.1016/j.jfbs.2020.100392

Hair, J. F., Risher, J. J., Sarstedt, M., & Ringle, C. M. (2019). When to use and how to report the results of PLS-SEM. European business review, 31(1), 2-24. https://doi.org/10.1108/EBR-11-2018-0203

Haq, I. U., & Huo, C. (2023). Digital strategy and environmental performance: the mediating role of digitalization in SMEs. Digital Economy and Sustainable Development, 1(1), 9. https://doi.org/10.1007/s44265-023-00010-5

Hendar, H., Nurhayati, T., & Sugiyarti, G. (2018). Religio-centric fashion advantage on marketing performance: The role of innovativeness and customer responsiveness. Contaduría y administración, 63(4), 0-0. https://doi.org/10.22201/fca.24488410e.2018.1378

Jaballah, J., Peillex, J., & Weill, L. (2018). Is being sharia compliant worth it? Economic Modelling, 72, 353-362. https://doi.org/10.1016/j.econmod.2018.02.011

Jafari Sadeghi, V., & Biancone, P. (2017). Shariah compliant international entrepreneurship: A study of Islamic finance in Europe. European Journal of Islamic Finance, 8, 1-8.

Khayer, A., Talukder, M. S., Bao, Y., & Hossain, M. N. (2020). Cloud computing adoption and its impact on SMEs’ performance for cloud supported operations: A dual-stage analytical approach. Technology in Society, 60, 101225. https://doi.org/10.1016/j.techsoc.2019.101225

Kılıç, G., & Türkan, Y. (2023). The emergence of Islamic fintech and its applications. International Journal of Islamic Economics and Finance Studies, 9(2), 212-236. https://doi.org/10.54427/ijisef.1328087

Kwabena, G.-Y., Qiang, M., Wenyuan, L., Qalati, S. A., & Erusalkina, D. (2019). Effects of the digital payment system on SMEs performance in developing countries; a case of Ghana. EPRA International Journal of Economic and Business Review, 1, 79-87. https://doi.org/10.36713/epra2997

Ly, R., & Ly, B. (2024). Digital payment systems in an emerging economy. Computers in Human Behavior Reports, 16, 100517. https://doi.org/10.1016/j.chbr.2024.100517

Muryanto, Y. T. (2023). The urgency of sharia compliance regulations for Islamic Fintechs: a comparative study of Indonesia, Malaysia and the United Kingdom. Journal of Financial Crime, 30(5), 1264-1278. https://doi.org/10.1108/JFC-05-2022-0099

Mustapha, S. A. (2018). E-Payment technology effect on bank performance in emerging economies–evidence from Nigeria. Journal of Open Innovation: Technology, Market, and Complexity, 4(4), 43. https://doi.org/10.3390/joitmc4040043

Nagano, H. (2019). The growth of knowledge through the resource-based view. Management decision, 58(1), 98-111.

Nailul, M. (2024). Implementation of Sharia Principles in Managing Halal Certified MSME Business. Iqtishodia: Jurnal Ekonomi Syariah, 9(1).

Nawaz, T., & Haniffa, R. (2017). Determinants of financial performance of Islamic banks: an intellectual capital perspective. Journal of Islamic Accounting and Business Research, 8(2), 130-142. https://doi.org/10.1108/JIABR-06-2016-0071

Nazaruddin, I., Sofyani, H., & Utami, T. P. (2024). Promoting Performance Measurement System Effectiveness in Higher Education Institution: Antecedents and Consequences. BAR-Brazilian Administration Review, 21(2), e230070. https://doi.org/10.1590/1807-7692bar2024230070

Nonaka, I., Nishihara, A. H., & Kawada, H. (2018). Knowledge-based management theory. Knowledge Creation in Public Administrations: Innovative Government in Southeast Asia and Japan, 1-21. https://doi.org/10.1007/978-3-319-57478-3_1

Nyaga, K. M. (2013). The impact of mobile money services on the performance of small and medium enterprises in an urban town in Kenya.

Ousama, A. A., Hammami, H., & Abdulkarim, M. (2020). The association between intellectual capital and financial performance in the Islamic banking industry: An analysis of the GCC banks. International Journal of Islamic and Middle Eastern Finance and Management, 13(1), 75-93. https://doi.org/10.1108/IMEFM-05-2016-0073

Pereira-Moliner, J., Pertusa-Ortega, E. M., Tarí, J. J., López-Gamero, M. D., & Molina-Azorín, J. F. (2016). Organizational design, quality management and competitive advantage in hotels. International Journal of Contemporary Hospitality Management, 28(4), 762-784. https://doi.org/10.1108/IJCHM-10-2014-0545

Phangestu, J., Kountur, R., & Prameswari, D. A. (2020). The moderating effect of entrepreneurial leadership and competitive advantage on the relationship between business model innovation and startup performance. Journal of Business and Retail Management Research, 14(03). https://doi.org/10.24052/JBRMR/V14IS03/ART-06

Prakoso, A., Triyuwono, I., Purwanti, L., & Roekhudin, R. (2023). How should intellectual capital development? An Islamic religious perspective. International Journal of Professional Business Review: Int. J. Prof. Bus. Rev., 8(5), 75. https://doi.org/10.26668/businessreview/2023.v8i5.1819

Qomaro, G. W., Nasrulloh, N., & Deuraseh, N. (2024). Sharia Compliance and Economic Resilience of Women-Led SMEs in Madura Indonesia. Journal of Islamic Civilization, 6(2), 107-122. https://doi.org/10.33086/jic.v6i2.6600

Ramashar, W., & Muhammad, N. M. N. (2024). Financial Behavior and Debt Decision-Making: The Role of Sharia Compliance of Muslim Entrepreneurs in Pekanbaru. International Journal of Religion. https://doi.org/10.61707/pp86fq16

Ratmono, D., Frendy, & Zuhrohtun, Z. (2023). Digitalization in management accounting systems for urban SMEs in a developing country: A mediation model analysis. Cogent Economics & Finance, 11(2), 2269773. https://doi.org/10.1080/23322039.2023.2269773

Riza, A. F. (2021). The potential of digital banking to handle the Covid-19 pandemic crisis: Modification of UTAUT model for Islamic finance industry. Jurnal Ekonomi & Keuangan Islam, 1-16. https://doi.org/10.20885/jeki.vol7.iss1.art1

Santoso, B., Hendar, H., Zaenudin, Z., & Haron, R. B. (2023). The Nahdliyah Spiritual Value Perspective in Analyzing The Role Of Financial Performance Of MSME. Jurnal Aplikasi Manajemen, 21(3), 622-641. https://doi.org/10.21776/ub.jam.2023.021.03.06

Scott, S. V., Van Reenen, J., & Zachariadis, M. (2017). The long-term effect of digital innovation on bank performance: An empirical study of SWIFT adoption in financial services. Research Policy, 46(5), 984-1004. https://doi.org/10.1016/j.respol.2017.03.010

Sudarti, K., & Fachrunnisa, O. (2024). Religious value co-creation: measurement scale and validation. Journal of Islamic Marketing, 15(1), 124-141. https://doi.org/10.1108/JIMA-08-2022-0223

Wernerfelt, B. (1984). A resource‐based view of the firm. Strategic management journal, 5(2), 171-180. https://doi.org/10.1002/smj.4250050207