CONCEPTUAL PAPER ON ISLAMIC FINANCIAL LITERACY AND SMALL MEDIUM ENTERPRISE FINANCIAL GROWTH IN MALAYSIA: THE EFFECTIVENESS OF GOVERNMENT SUPPORT

Abstract

This conceptual paper investigates the relationship between Islamic financial literacy and the financial growth of Malaysia'sSmall and Medium-sized Enterprises (SMEs). The study evaluates the effectiveness of government support in developing SME Islamic financial literacy and examines its impact on SMEs' overall financial performance. The primary objective is to assess the current level of Islamic financial literacy among MalaysianSMEs, identify the challenges they face, and evaluate the effectiveness of government measures in enhancing financial capabilities and fostering financial growth. Using organizational performance as the conceptual framework, thisstudy employs a qualitative approach, based on a thorough review of existing literature and relevant empirical research. Key findings from this study highlight that while there are several government initiatives aimed at improving Islamic financial literacy among SMEs, the effectiveness of these programs varies significantly. Many SMEs still struggle with understanding and applying Islamic financial principles due to limited access to education and resources. The study also reveals that SMEs with higher levels of Islamic financial literacy are better equipped to manage their resources efficiently, access appropriate financial services, and make informed decisions that support sustainable business growth. The implications of these findings suggest that government support plays a crucial role in enhancing Islamic financial literacy, but there is a need for more targeted and accessible financial education programs. Effective government interventions can bridge the knowledge gap, enabling SMEs to leverage Shariah-compliant financial products and services more effectively. This study provides valuable insights into the interplay between Islamic financial literacy, government support, and the financial performance and growth of Malaysian SMEs, offering recommendations for policymakers to enhance the impact of financial literacy initiatives.