RELATIONSHIPS BETWEEN ISLAMIC FINANCE, FIRM COMPETITIVENESSAND THE PERFORMANCE OF SMES IN KADUNA STATE

Abstract

The study examines the effects of Islamic finance on the performance of small and mediumsized enterprises (SMEs), firm competitiveness on SME performance, and the potential
mediating role of firm competitiveness in the association between Islamic finance and SME
performance in Kaduna State. The study's sample size is 504 SMEs purposively selected from
three local government areas in Kaduna State: Sabon-Gari, Kaduna North, and Kubau. A
total of 504 copies of questionnaires were distributed to gather data for the study; however,
385 valid responses were received and used for final analysis. The research utilises
structural equation modelling as a statistical technique for analysing the data. The results
suggest that Islamic finance has a notable and favourable impact on the performance of
SMEs. In addition, firm competitiveness plays a constructive and statistically significant role
in influencing SME performance. Furthermore, the relationship between Islamic finance and
SME performance is significantly mediated by firm competitiveness. Based on the findings,
the study suggests that policymakers and financial institutions should prioritise the
augmentation of firm-specific capabilities within SMEs in Kaduna State. This approach aims
to capitalise on the favourable influence of Islamic finance on the overall performance of
these enterprises.