The Role of Social Financing in Promoting Social Equity and Shared Value: A Cross-Sectional Study of Small and Medium Enterprises in Malaysia and Saudi Arabia

Abstract

This study intends to investigate the role of social financing in supporting sustainable development and fostering entrepreneurship within small and medium enterprises (SMEs) and its future directions and opportunities in Malaysia and Saudi Arabia. SMEs are increasingly implementing sustainable business models to tackle resource constraints and environmental issues to foster long-term social and environmental impact. A quantitative research design was employed, with data collected through questionnaires distributed to SME owners using purposive sampling. A total of 600 questionnaires were distributed, with 106 valid responses analyzed. The study employed descriptive statistics and Structural Equation Modeling (SEM) using SmartPLS 4.0 to assess the framework. The findings reveal significant positive effects of financial institutions, globalization impact, and access to finance on the role of waqf in SME development, while business obstacles and government support showed no significant influence. According to this study, open innovation is crucial to fostering collaboration between small- and medium-sized enterprises, Islamic endowments, and external stakeholders such as non-profits, government agencies, and community groups. This research adds to the expanding body of knowledge regarding the efficacy of social entrepreneurship and inclusive business models in addressing environmental challenges and assisting SMEs in their long-term growth by facilitating the creation of shared value and the dissemination of sustainable business solutions.

1. Introduction

The world community is confronted with pressing difficulties pertaining to economic development, environmental sustainability, and inequality; creative financial models are crucial for tackling these intricate problems. Social financing through Islamic endowment is one such approach that is essential to promoting social and economic well-being. Islamic endowment (Waqf) refers to funds set aside in trust for charitable purposes within the Islamic framework. Its significant role encompasses community welfare and addressing pressing social challenges, such as supporting education, poverty alleviation, healthcare facilities, spiritual facilities, and aiding entrepreneurs in their business endeavors. Islamic endowment (waqf)-based financing offers small and medium enterprises (SMEs) customized financial solutions, such as interest-free loans, profit-sharing arrangements, or equity investments, aligning with the values and objectives of the SMEs [1]. Leveraging Islamic endowment in the context of SMEs can foster ethical and sustainable financing solutions to contribute to overall socio-economic development [2,3]. There is limited empirical research on its practical application to the sustainable development of SMEs, particularly in the contexts of Malaysia and Saudi Arabia [4,5]. The selection of Saudi Arabia is due to its effort in integrating Islamic finance, including waqf-based funding into its economic framework. Saudi Arabia is also undergoing economic transformation under the Saudi Vision 2030 which aims to diversify the economy, reduce oil dependency, and strengthen the SME sector [6]. Existing studies have primarily focused on theoretical discussions, with inadequate exploration of how waqf financing can overcome the unique challenges faced by SMEs, such as limited access to finance and globalization impact. This gap is particularly critical given the significant role SMEs play in both countries’ economies. This study seeks to address this gap by examining the role of Islamic endowment-based financing in supporting SMEs, creating social value, and fostering financial inclusion, ultimately contributing to the achievement of sustainable development goals (SDGs), with a particular emphasis on social equity, shared value, and sustainable business practices in Malaysia and Saudi Arabia.

The SDGs are strongly aligned with social funding, including models like waqf, especially those that focus on sustainable communities (Goal 11), economic growth (Goal 8), and decreased inequality (Goal 10). The SDGs advocate for sustainable and inclusive economic growth that may boost jobs, lower poverty, and guarantee equitable access to capital. Both Malaysia and Saudi Arabia boast robust SME sectors crucial to economic growth and job creation. As of the end of Q4 2023, there were over 1.3 million SMEs in Saudi Arabia and the SME sector in Saudi Arabia is experiencing a period of rapid growth and transformation, assisted by government support, and private investment [7]. In Malaysia, SMEs generate 48% of employment, accounting for 7.25 million people [8,9]. In Saudi Arabia, SMEs contribute 45% to the total employment rate and 33% to the nation’s gross domestic product. The Saudi Arabian government, under its Vision 2030 plan, places a strong emphasis on SME development, aiming to diversify the economy and promote entrepreneurship [10]. Similarly, the Malaysian government has established various agencies and programs to bolster SMEs, with many actively pursuing global expansion opportunities through trade agreements and international markets. SMEs are vital to Saudi Arabia’s economic diversification efforts, to increase their contribution to GDP to 35% by 2030. Access to finance and skilled labor remains a challenge for some SMEs, but the government is actively working to address the issues [7].

However, despite these efforts, SMEs continue to face significant challenges, particularly in accessing adequate financing options that align with their ethical, environmental, and social goals. Microenterprises, which are characterized by small-scale operations and fewer than five employees, often face challenges in accessing financing due to limited collateral and credit histories. In both Malaysia and Saudi Arabia, microfinance institutions (MFIs) and waqf-based funding initiatives have emerged as critical support mechanisms for this segment. Malaysian SMEs face challenges in accessing finance despite their growth potential [11]. On the other hand, access to financing for SMEs in Saudi Arabia has improved with the establishment of specialized financial institutions, venture capital firms, and government-backed loan programs, though challenges persist, including difficulties in obtaining funding aid [12,13]. The Saudi government has made substantial investment in entrepreneurship as part of its Vision 2030 initiative, which aims to diversify the economy away from oil dependency. Institutions such as the Small and Medium Enterprises General Authority (Monsha’at) provide funding, training, and advisory services for small businesses. The government has also introduced financial support mechanisms, such as the Kafalah program, which facilitates access to loans for microenterprises, thereby addressing one of the critical barriers to entrepreneurship in Saudi [14]. Adequate capital is pivotal for SMEs, encompassing starting, developing, and expanding their operations. These financing challenges are further exacerbated by factors such as limited collateral, inadequate credit history, and perceived high risk. Financial institutions often prioritize these factors over the developmental potential of SMEs, thereby restricting access to capital [15]. Scarce or costly external funding options exacerbate financial limitations for SMEs.

SMEs encounter challenges when seeking financing from financial institutions, attributed to factors such as a lack of collateral, limited credit history, or perceived high risk. The accessibility of bank financing is a contentious issue, with SMEs criticizing banks for supplying insufficient funding to small entrepreneurs, while banks attribute the challenge to a perceived lack of robust credit demand from entrepreneurs [16]. Even when financing is available, SMEs in the high-risk category may contend with elevated interest rates or additional fees, impeding their cash flow management and hindering business investment [17]. The tightening of financial markets globally, driven by increased risk aversion and uncertainty following the epidemic, is anticipated to alter the borrowing landscape for SMEs due to the tightening of monetary policy aimed at combating inflation [18].

Islamic endowments (waqf) have shown potential alternative financing model in supporting social equity and economic inclusion through successful initiatives. One key example is Bank Wakaf Mikro in Indonesia, a microfinance institution using waqf-based endowments, which offer small loans, often ranging from IDR 1 to 3 million, with no collateral and at a very low administrative cost. According to data from September and October 2020, Indonesia Waqf Bank (BWM) has 56 registered BWMs with total financing of IDR 51.1bn and 362,000 active accounts [19]. This model allows entrepreneurs, especially women and small-scale business owners, to grow their businesses sustainably without falling into debt traps. In Malaysia, financial institutions such as Bank Islam Malaysia Bhd (BIMB) provide financial aid to SMEs engaged in waqf projects. Additionally, the Yayasan Waqaf Malaysia has collaborated with the Halal Development Corporation Berhad to introduce a halal waqf initiative aimed at MSMEs. This initiative offers up to RM 25,000 for business asset acquisition, particularly for equipment and machinery, and operates as a revolving fund, where repayments from recipients help finance new applicants. This demonstrates waqf’s potential to create a self-sustaining financial ecosystem, which can help provide support to SMEs, alongside conventional financing options. These systems not only remove monetary obstacles but also allow business owners to follow environmentally friendly operations that advance larger social objectives. SMEs can obtain the funding they require to grow their businesses and help achieve SDG targets by adopting waqf, especially those pertaining to financial inclusion (Goal 8.10), poverty alleviation (Goal 1), and decent work and economic growth (Goal 8).

Despite both Malaysia and Saudi Arabia having a tradition of Islamic endowment (waqf), SMEs in these countries often grapple with challenges such as limited access to finance and markets. One of the primary challenges faced by SMEs in accessing waqf-based financing is the lack of awareness and understanding of waqf mechanisms among entrepreneurs. This lack of knowledge is compounded by the limited availability of educational resources and training programs that could help SMEs understand the benefits and processes associated with waqf financing [9,20]. Furthermore, the bureaucratic complexities involved in establishing waqf funds can deter potential entrepreneurs from engaging with this financing model, as they may perceive it as cumbersome and time-consuming [21].

Islamic endowment presents numerous advantages for SMEs by aligning with their values and goals and fostering sustainable business strategies [22]. Moreover, Islamic endowment (waqf) can be harnessed to optimize under-utilized assets through entrepreneurial initiatives, creating sustainable business ventures and innovative products, particularly with underutilized Islamic endowment (waqf) lands [23]. However, the adoption of this practice remains relatively low for SME development in both countries. Hence, this study aims to investigate the factors influencing the role of Islamic endowment (waqf) in SME development with an emphasis on its role in upholding social value creation, financial inclusion, and shared value in Malaysia and Saudi Arabia. Additionally, the study seeks to identify the direction and opportunities for Islamic endowment (waqf) to contribute more effectively to the sustainable development of SMEs in both countries.

The findings of the study highlight the importance of financial institutions in supporting the use of Islamic endowments, or waqf, as a means of encouraging inclusive entrepreneurship and sustainable business models. Finance institutions assist SMEs in overcoming obstacles to global expansion and innovation by serving as middlemen and offering tailored finance solutions, advice services, and compliance monitoring. These collaborations support social justice, sustainable innovation, and the development of shared value.

The main objective of this study is to investigate the factors influencing the role of Islamic endowment (waqf) in the development of SMEs in Malaysia and Saudi Arabia. The objective intends to answer this study’s research question—what are the factors influencing the role of Islamic endowment (waqf) in SMEs’ development in Malaysia and Saudi Arabia? This study aims to close the gap between the theoretical potential of waqf and its actual use in company development by investigating the elements that affect SMEs’ perceptions of waqf, such as institutional support, global market expansion, and financial accessibility. Additionally, this study seeks to shed light on how waqf might be included in more comprehensive open innovation frameworks, where cooperation between SMEs, financial institutions, governmental bodies, and non-governmental organizations can promote social justice and sustainable development.

The structure of the article is organized as follows: Section 2 covers the literature review and proposed hypotheses, discussing the conceptual framework and underlying theory. Section 3 outlines the research methodology, followed by data analysis in Section 4. Section 5 is the discussion, while Section 6 explores the theoretical and practical implications, limitations, and potential avenues for future research.

2. Literature Review and Hypothetical Development

2.1. Islamic Endowment’s (waqf) Role

Islamic endowment (waqf) plays a crucial role in offering several benefits to SMEs, particularly in terms of access to funding through various mechanisms such as Islamic endowment (waqf)-based financing, interest-free loans, profit-sharing arrangements, or equity investments [1]. It serves as an alternative funding source rooted in charitable donations, eliminating reliance on interest-based transactions [24]. Beyond financing, Islamic endowment (waqf) is designed to foster social welfare, ensure equitable wealth distribution, and contribute to community development [25]. Additionally, Islamic endowment (waqf) institutions facilitate SMEs in accessing collaborative networks and relationships, providing valuable support for their growth and development. Collaborating with such institutions allows SMEs to tap into resources and support that may be otherwise inaccessible [22]. Through Islamic endowment (waqf)-based financing, SMEs gain a sustainable funding source, reducing vulnerability to market fluctuations and enabling long-term planning for sustainable growth strategies [2].

Culturally, Malaysia is characterized by a diverse population comprising various ethnic groups which fosters a multicultural environment. The role of waqf in Malaysia is often linked to community development and social welfare, reflecting the multicultural nature of the nation [26]. Economically, Malaysia’s economy is more diversified, with a significant contribution from the manufacturing and services sectors, alongside a developing Islamic finance industry that supports SMEs through several financial instruments, including Islamic banking and sukuk [27]. In contrast, Saudi Arabia’s culture is predominantly Arab and Islamic, with a strong emphasis on traditional values and practices. In Saudi Arabia, waqf is primarily focused on religious and educational purposes, which can limit its direct application to supporting SMEs. Additionally, the Saudi Arabian economy’s heavy reliance on oil revenues challenges its waqf utilization for entrepreneurial support, which shapes its financial landscape. The Vision 2030 initiative by Saudi Arabia aims to create a thriving economy by providing a supportive environment for businesses including SMEs, which could include establishing waqf funds specifically for SMEs and enhancing awareness of waqf’s role in economic development. The ongoing reforms and initiatives in both countries can further enhance the role of waqf in fostering sustainable economic growth, particularly in the SME sector.

There are several differences between Islamic endowment as compared to other conventional and alternative financing methods (

Table 1. Islamic endowment vs. other conventional and alternative financing methods.

Financing Method	Waqf	Loans	Incentives (Grant/Subsidies)	Crowdfunding
Nature	Charitable, no repayment required.	Debt-based, requires repayment plus interest.	Financial support by the government or private entities, often non repayable.	Collective fundraising from public or investors.
Key advantages	Interest-free, aligns with Islamic principles, promotes social welfare.	Widely available, structured, and flexible.	Non-repayable funds to promote business growth.	No debt incurred, access to a broad funding base.
Key disadvantages	Limited scope, traditionally focused on religious/charitable projects.	Requires repayment with interest (or profit), collateral often needed.	Limited availability, highly competitive, dependent on government policies.	Uncertain success, requires strong marketing and appeal.
Scope of Use	Community development and social welfare.	Flexible, can be used for various business purposes such as expansion, working capital.	Specific to government objectives such as innovation, R&D, job creation.	Suitable for startups, creative projects, and new products.
Examples	Yayasan Waqaf Malaysia and General Authority for Awqaf Saudi Arabia.	SME Bank Malaysia and SME Bank Saudi Arabia.	SME Corp Malaysia’s Matching Grant and Saudi Vision 2030 SME Support Program.	Funding Society and Lendo.

Source: Developed by the researcher.

).

Even though waqf offers interest-free, charitable financing aligned with Islamic principles, its traditional focus on religious and charitable projects limits its broader application in modern business contexts, particularly for SMEs. In contrast, loans provide flexibility but come with repayment burdens and collateral requirements, which can be restrictive for smaller enterprises. Grants and subsidies, though non-repayable, are highly competitive and often temporary, tied to specific government objectives. Crowdfunding, while avoiding debt, relies heavily on marketing success and public appeal, making it uncertain and less predictable. Hence, while each method has its strengths, the limitations highlight the need for a diversified approach to SME financing, one that includes waqf but also addresses the gaps in modern financial products for small businesses. Moving forward, further integration of waqf with other financial mechanisms may help address some of these limitations, promoting greater financial inclusivity and support for SMEs.

While the role of waqf is well-documented in promoting social welfare and economic development, the literature tends to focus more on charitable and religious applications, especially in Saudi Arabia. There is a lack of empirical research on how waqf-based funding can be adapted for entrepreneurial support, particularly in non-religious sectors. For instance, the authors of [26] emphasize waqf’s significance in Islamic philanthropy, particularly in education and healthcare, yet few studies examine its direct role in supporting micro, small and medium enterprises (MSMEs). This creates a gap in understanding how waqf can be innovatively applied in entrepreneurial contexts beyond charitable purposes, especially in non-religious sectors. There is a need to address how waqf institutions can diversify their investments to support emerging businesses and entrepreneurship beyond the charitable sector.

2.2. Business Obstacles

Business obstacles encompass the difficulties and barriers that organizations face in achieving their objectives, growing, or operating effectively [28]. SMEs, particularly those owned by women, may encounter additional challenges in accessing Islamic endowment (waqf) funds due to cultural and societal biases limiting their financial access and resources. This may result in increased competition challenges compared to their male counterparts with potentially better access to capital and resources [29]. Similarly, older entrepreneurs may face hurdles in accessing Islamic endowment (waqf) funds if they lack the skills or knowledge needed for the application process, or if they are less familiar with newer technologies or business models. Conversely, younger entrepreneurs may struggle due to limited experience and networks, making it challenging to secure funding [9].

Islamic endowment (waqf) can be instrumental in overcoming these business obstacles for SMEs. For instance, it can be utilized to provide financing, invest in technology and innovation, offer training and mentorship programs (including for women entrepreneurs), and build business networks and ecosystems [30]. Furthermore, Islamic endowment (waqf) programs contribute to raising awareness about the unique challenges faced by SMEs and foster partnerships with other organizations and stakeholders to support their growth and development [30]. Therefore, the following hypothesis is formulated:

H₁. 

There is a positive relationship between overcoming the business obstacles with the role of Islamic endowment in SME sustainable development funding.

2.3. Access to Finance

Access to finance involves comprehensive evaluation and analysis of various financial aspects within an organization. This process aims to make informed decisions, manage financial activities effectively, and achieve financial objectives, guiding the strategic direction of the organization’s development [31]. While small businesses play a crucial role in economic development, they often encounter challenges in securing external finance during the early and middle stages of the entrepreneurial lifecycle in many countries, irrespective of their development status [3]. Challenges such as a lack of management experience, inefficiencies in financial record systems, and a lack of collateral contribute to the brief sustainability of the average SMEs [32].

Islamic endowment (waqf) is recognized as a significant source of finance in the Islamic financial system, with considerable potential for use in SME financing [22]. SMEs can leverage resources from Islamic endowment (waqf) funds to enhance their financial position, expand operations, and create job opportunities. For instance, SMEs can access microfinance loans based on Islamic endowment (waqf) principles, typically offered by Islamic endowment (waqf) institutions or specialized financial institutions in Islamic finance. These loans may be structured as interest-free or profit-sharing arrangements [33]. Additionally, SMEs can seek funding through Islamic endowment (waqf)-based crowdfunding platforms, allowing individuals and businesses to contribute funds in exchange for social or financial returns. Such crowdfunding platforms can be established by Islamic endowment (waqf) institutions or financial institutions [34]. Therefore, the following hypothesis is formulated:

H₂. 

There is a positive relationship between access to finance and the role of Islamic endowment (waqf) in SME sustainable development.

2.4. Globalization Impact

The impact of globalization encompasses the profound and far-reaching effects of increased interconnectedness and interdependence among countries, economies, cultures, and societies globally. This multifaceted phenomenon influences various aspects of human life and the global landscape [35]. Particularly, globalization has significantly impacted small and medium enterprises (SMEs). Opening up new markets, globalization enables SMEs to expand their customer base and increase revenues by selling products and services internationally and accessing global supply chains for raw materials and components [36]. However, it also intensifies competition for SMEs, necessitating differentiation strategies in a global marketplace crowded with companies from around the world, potentially challenging those with limited resources or experience [37].

The benefits of globalization can be transformative for SMEs. By providing access to new markets, technologies, and funding sources, globalization facilitates the growth and expansion of SMEs, leading to increased job creation, income generation, and overall economic growth [38]. Furthermore, globalization presents opportunities for Islamic endowment (waqf) organizations to invest in SMEs with the potential for higher returns, thereby enhancing the impact of their investments [39]. However, SMEs utilizing Islamic endowment (waqf) may face increased competition as globalization facilitates easier entry into new markets for businesses [40]. Therefore, the following hypothesis is formulated:

H₃. 

There is a positive relationship between the impact of globalization and the role of Islamic endowment (waqf) in SME sustainable development.

2.5. Government Support

Government support involves various forms of assistance, subsidies, incentives, policies, and programs aimed at individuals, businesses, or organizations to achieve specific objectives or address particular needs [41]. Recently, there has been a growing interest in utilizing Islamic endowments (waqf) as a means to promote economic development, particularly among SMEs. The establishment of an Islamic endowment (waqf) fund, functioning as a charitable trust accepting donations from individuals, businesses, and organizations, allows the fund’s proceeds to be used for providing loans, grants, or other financial support to SMEs [42]. Governments can also contribute to supporting the development of Islamic endowment (waqf) properties for commercial use by SMEs. This involvement may include offering funding or tax incentives to encourage developers to invest in such properties or collaborating with Islamic endowment (waqf) institutions to develop commercial spaces available for rent by SMEs [43].

Furthermore, governments can establish Islamic endowment (waqf)-based business incubators to provide comprehensive support to SMEs. These incubators offer a range of services, including mentoring, training, networking opportunities, and access to funding [44]. Government support is instrumental in enhancing the visibility and credibility of Islamic endowment (waqf) as a viable mechanism for supporting SMEs. This support can attract more donors and investors to Islamic endowment (waqf) causes, thereby increasing the pool of resources available for SME support. The government’s role in providing a regulatory framework for Islamic endowment (waqf) activities contributes to ensuring transparency and accountability in managing Islamic endowment (waqf) resources. For example, Malaysia has established waqf policies and regulations tailored to each state in the country, where processes for waqf institutions and guidelines for ethical investment practices, can further bolster confidence among potential donors and investors. Therefore, the following hypothesis is formulated:

H₄. 

There is a positive relationship between government support and the role of Islamic endowment (waqf) in SME sustainable development.

2.6. Financial Institutions

Financial institutions are entities that provide financial services and products to individuals, businesses, and governments, playing a crucial role in global and national economies by facilitating the flow of funds and capital. Financial institutions can significantly contribute to the utilization of Islamic endowments (waqf) to support SMEs. They can develop specialized Islamic endowment (waqf)-based financing products tailored for SMEs, such as microfinance loans or crowdfunding platforms, allowing contributions from individuals and businesses to support SMEs [45]. Furthermore, financial institutions can invest in Islamic endowment (waqf) properties and other projects based on Islamic endowment (waqf) principles that benefit SMEs. By engaging in these projects, financial institutions not only generate financial returns but also contribute to economic development [43]. Additionally, financial institutions can offer management and advisory services to Islamic endowment (waqf) institutions supporting SMEs. This includes assisting in identifying and developing commercially viable Islamic endowment (waqf) projects and managing the financial aspects of such projects [2,46], financial institutions can play a vital role in educating and training SMEs on the benefits of Islamic endowment (waqf)-based financing and investment. This educational effort aims to enhance SMEs’ understanding of available opportunities through Islamic endowment (waqf) and guide them on accessing these opportunities [25].

Financial institutions can also provide expertise and technical assistance to Islamic endowment (waqf) organizations and SMEs in developing and implementing their initiatives. By supplying funds to support SME-focused initiatives, financial institutions enable many SMEs to overcome financial constraints and enhance their capacity. Therefore, the following hypothesis is formulated:

H₅. 

There is a positive relationship between financial institutions and the role of Islamic endowment (waqf) in SME sustainable development.

2.7. Entrepreneurial Ecosystem Theory

Isenberg (2010) proposed the Theory of Entrepreneurial Ecosystem which suggests that the success of SMEs is influenced by a complex set of factors, with key elements including access to funding and infrastructure. This theory emphasizes the significance of collaboration and networking among entrepreneurs, investors, and other stakeholders to create an environment conducive to entrepreneurship and innovation. Additionally, the authors of [47] argue that entrepreneurial ecosystems provide a framework for understanding the diverse components essential for fostering entrepreneurship in a specific context. Government and leadership are two sub-elements focused on enabling policies within this framework. The government component comprises institutional, financial support, and regulation incentives, such as tax benefits. The leadership element involves unwavering support, social legitimacy, entrepreneurship strategy, and overcoming tough obstacles [48].

Based on the literature review and the Entrepreneurial Ecosystem Theory, a conceptual framework is developed. This framework incorporates business obstacles, access to finance, globalization’s impact, government support, financial institutions, and the role of Islamic endowment (waqf). Figure 1 illustrates the hypothesized relationships explored in this study.

3. Methodology

3.1. Data Collection

The survey questionnaires were distributed among SME owners (entrepreneurs) selected through a purposive sampling technique, specifically targeting SMEs in Malaysia and Saudi Arabia. Given that entrepreneurs are crucial contributors to business development and growth, they were considered essential research subjects. The survey questionnaires were administered face-to-face and through Google Forms for online distribution. While face-to-face surveys allow for higher response rates and clarification of ambiguous questions, they may elicit socially desirable responses due to the presence of an interviewer. Conversely, online surveys offer anonymity but may result in lower response rates and limited engagement. To minimize these biases, the survey was designed to ensure confidentiality, and respondents were assured that their participation and responses would remain anonymous. Trained enumerators assisted in distributing questionnaires to the owners. Out of 600 questionnaires distributed, 106 were successfully selected and valid for further analysis. While this number may appear low, it aligns with recommendations by [49,50], who suggest a range of 30 to 500 units for sample size in studies. Additionally, the guideline created by [51] indicates that the minimum sample size should be at least ten times the largest number of structural paths directed at any single latent variable within the model. Based on this criterion, a minimum of 50 respondents is required to ensure reliable results, and the sample size obtained exceeds this threshold. The sample size and sampling technique were selected based on the nature of the investigation, practical limitations, and statistical analysis recommendations. The researchers moved forward with the data analysis since the sample size of 106 was deemed sufficient for this study and large enough to offer trustworthy insights. The survey questionnaires served as valuable tools for investigating patterns in the acquired data, a commonly successful approach in consumer research [52].

To ensure the quality and robustness of the survey instrument, the questionnaire was validated by both an academic expert and an industry professional before its final distribution. This process was crucial to establish the content validity of the questionnaire and ensure its relevance to the research objectives. The academic expert provided feedback on the clarity, structure, and appropriateness of the questions. Meanwhile, the industry expert evaluated the practical relevance of the questions to ensure they accurately reflected the realities faced by entrepreneurs in Malaysia and Saudi Arabia. Additionally, a pilot study was conducted with 30 respondents to assess the questionnaire’s validity and reliability. The pilot study allowed for the identification and rectification of any ambiguities or issues in the questions, ensuring that respondents would interpret the questions consistently. Reliability was measured using Cronbach’s alpha to assess internal consistency, with the results indicating acceptable reliability levels for the constructs. Feedback from the pilot study was incorporated into the final version of the questionnaire, enhancing its overall reliability and validity for use in the main study.

To address potential issues related to common method bias (CMB), procedural remedies were implemented during the research design phase, following the recommendations of [53]. The questionnaire was carefully structured to avoid ambiguous, leading, or double-barreled questions. Items were also simplified and written in clear language to ensure accurate understanding. Moreover, items measuring different constructs were arranged in separate sections to reduce the likelihood of respondents identifying patterns or relationships. Implementing these procedurals minimized the likelihood of CMB, thus ensuring the validity of the findings [54].

3.2. Measurement of Variables

This study adopts a quantitative and cross-sectional approach. Measurement items for all constructs were drawn from the literature. The study aims to assess the influence of business obstacles, finance, globalization impact, government support, and financial institutions on the role of Islamic endowment (waqf) for SMEs. The unit of analysis is at the individual level, utilizing a 7-point Likert scale ranging from 1 (strongly disagree) to 7 (strongly agree). The dependent variable is the role of Islamic endowment (waqf), while the remaining variables serve as independent variables adapted from past studies. The study employs six items to measure Islamic endowment (waqf) [55], seven items for business obstacles [56,57], four items for assessing finance [58], six items for globalization impact [59], eight items for government support [60], and seven items for financial institutions [46,61].

3.3. Data Analysis

The data analysis process involves multiple steps using various statistical tools. SPSS 26 is employed for conducting frequency analysis and descriptive analysis. Frequency analysis is utilized to extract the percentile profile of respondents, while mean and standard deviation are computed for descriptive analysis. Structural Equation Modeling (SEM), specifically based on partial least squares (PLS) using SmartPLS 4.0, is employed to investigate the hypotheses. The data analysis for Malaysia and Saudi Arabia was conducted simultaneously using SmartPLS 4.0 to assess the previously formulated hypotheses. The quantitative testing is carried out in two stages. The first stage involves testing the measurement model and assessing the reliability and validity of each indicator’s constructs (variables). The second stage includes running a structural model test to determine correlations or influences between constructs and variables.

4. Results

4.1. Profile of the Respondents

The demographic profile of the respondents indicates that participants in the study possess sufficient experience and hold positions relevant to the research. The study encompasses a total of 106 respondents from Malaysia and Saudi Arabia, with 55.7% being Malaysian and 44.3% Saudi Arabian. The majority of respondents (24.5%) come from the service sector, while the food industry, manufacturing, tourism, and hospitality constitute 15.1%, 12.3%, and 11.3% of respondents, respectively. Respondents engaged in the agriculture sector and factory consumer products represent 9.4% and 3.8%, respectively, while 19.8% operate in other sectors.

Furthermore, 83% of businesses employ fewer than 55 full-time employees. Businesses with full-time employees exceeding 201 people constitute 9.4%, those with employees numbering 56 to 75 make up 5.7%, and businesses employing 76 or more employees comprise 1.9%. A total of 38 respondents have been operating their businesses for less than 2 years, 22.6% for 3–4 years, 17.9% for 5–10 years, and 11.3% for more than 25 years. Additionally, 5.7% of respondents report that their businesses have been operating for 11–15 years, 3.8% for 16–20 years, and 2.8% for 21–25 years.

Among the respondents, 25 are aged between 18 and 25, 23 are between 26 and 30, 22 are between 31 and 35, 15 are between 36 and 40, 10 are aged 51 and above, 6 are between 41 and 45, and 5 are between 46 and 50. In terms of education, 29.8% hold a diploma, while 70.2% possess a bachelor’s degree. A breakdown by nationality shows that 37.2% of respondents are Malaysian, while 62.8% are Indonesian. Regarding educational background, the highest percentage of respondents (40.6%) hold a degree/bachelor’s degree, followed by 22.6% with a diploma, 18.9% with secondary education, 11.3% with certificates, 4.7% with a master’s degree, and 1.9% with below secondary education. Out of 106 respondents, 45 entrepreneurs operate physical shops, 21 operate online shops, and 40 operate both physical and online shops.

4.2. Descriptive Analysis

The results of the descriptive analysis indicate that the variable of business obstacles reveals that the item “Availability of capital is an obstacle in my business” obtains the highest mean of 4.24, suggesting that it has the strongest influence on business obstacles. This highlights the critical need for alternative financing mechanisms, such as waqf, to alleviate the issue of lack of capital by providing collateral-free and interest-free funding. Concerning finance, “My company does not meet financial institutions’ requirements” has the highest mean of 2.92, signifying that it has the most significant impact on access to finance for Islamic endowment (waqf)’s role. Waqf financing, which operates without requiring traditional collateral or credit history, has the potential to bridge this gap, particularly for underserved SMEs. Globalization impact shows that the item “My company is facing difficulty in coping with the recession” has the strongest influence, with a mean value of 3.96. This finding indicates the need for waqf institutions to extend their role beyond financing by supporting SMEs through business sustainability initiatives, such as training on global market trends, and risk management. The variable of government support indicates that “The government provides programs of entrepreneurship to me as a young Saudi/Malaysian” with a mean value of 3.63 has the strongest influence on government support for Islamic endowment (waqf)’s role. Governments could collaborate with waqf institutions to create programs that align with entrepreneurial goals, ensuring that SMEs benefit from financial and non-financial support. Moreover, respondents also agree that “Financial institutions should collaborate with the government for Islamic endowment (waqf) development for SMEs” with the highest mean value of 4.68, indicating the strongest influence of financial institutions towards Islamic endowment (waqf)’s role. Practical strategies to foster collaborations may include establishing a waqf fund managed by financial institutions under government oversight to strengthen the waqf ecosystem and enhance SMEs access to waqf-based financial resources. In the Islamic endowment (waqf)’s role, “To fund entrepreneur development” has the highest mean of 5.37, indicating that it has the strongest influence on the variable. The mean of 5.37 suggests that most respondents are positive about the role of Islamic endowment (waqf) towards SME development in Saudi and Malaysia. The constructs and sources of developed measures and the results of the descriptive analysis are presented in

Table 2. Results of descriptive analysis.

Constructs and Sources of Developed Measures	Items	Mean	Standard Deviation
Business Obstacles [56,57]	Gender is an obstacle in my business	2.25	1.847
	Age is an obstacle in my business	2.32	1.792
	Education background is an obstacle in my business	2.51	1.873
	Lack of experience is an obstacle in my business	3.61	2.180
	Availability of capital is an obstacle in my business	4.24	2.308
	Lack of training is an obstacle in my business	3.48	2.192
	Lack of expertise is an obstacle in my business	3.14	2.162
Access to finance [58]	My company lacks a credit record	2.85	1.891
	My company is inadequate in business planning	2.46	1.663
	My company does not meet financial institutions’ requirements	2.92	1.891
	My company is poor in business performance	2.56	1.685
Globalization Impact [59]	My company is facing difficulty in coping with the recession	3.96	1.897
	My company is facing barriers posed by global sourcing	3.79	1.881
	My company is facing low productivity	3.52	1.801
	My company is facing a lack of organizational expertise	3.65	1.867
	My company is facing a lack of funding	3.93	1.973
	My company is facing a lack of access to technology	3.25	1.847
Government Support [60]	Government agencies offer me waqf	1.76	1.438
	I am getting training provided by the government agencies for improving my business	2.97	2.026
	I am obtaining financial facilities for my business from the government agencies	2.43	1.892
	I am getting free land for my business from the government agencies	1.66	1.524
	My company is moving toward technological knowledge with the help of the government	2.27	1.829
	The government provides programs for entrepreneurship to me as a young Saudi/Malaysian	3.63	2.166
	The government agencies support my halal business start-ups fundraising through waqf	2.19	1.967
	The government boosting digitalization and advanced technology through the waqf fund for my business	2.40	2.050
Financial Institution [46,61]	Financial institutions (FI) provide funding as start-up capital for my business	3.29	2.230
	FI provides flexible loan repayment for my business	3.31	2.171
	FI provides enough finances (funds) to channel for SMEs	3.56	2.103
	FI provides access to credit facilities for my business	3.56	2.183
	FI provides Islamic products to my business	3.67	2.203
	FI should collaborate with the government for waqf development for SMEs	4.68	2.012
	FI provides a micro-funding source to develop new businesses for SMEs	4.49	2.085
Role of Waqf [55]	To fund poverty alleviation programs	5.29	1.922
	To fund medical benefits	5.08	2.043
	To fund entrepreneur development	5.37	1.978
	To feed families through many economic empowerment initiatives	5.34	1.999
	Cash waqf funds able to be supplemental governmental revenues	5.00	2.079
	Waqf can help in controlling unsustainable debt as waqf to finance public expenditures or at least part of it	5.26	1.982

.

4.3. Reliability and Validity

This analysis assesses the reliability and validity of each construct before performing further analysis. The study examines the loading factor values for each variable in the construct validity test. Reliability is then tested using the construct reliability (CR) and average variance extracted (AVE) methods.

4.4. Measurement Model

Ref. [62] recommends a two-step approach when developing a model, which is as follows: 1. A measurement model to test the reliability and validity of items in survey instruments [63,64]. A structural model is used to test the proposed hypotheses.

Figure 2 shows the loadings, average variance extracted (AVE), and composite reliability (CR) that were assessed for the measurement model. The values of loadings were all above 0.50, AVEs were all higher than 0.5, and CRs were all higher than 0.7, as shown in

Table 3. The results of the measurement model.

Construct	Items	Loading	AVE	CR	α
Islamic endowment (waqf)’s role	D1	0.842	0.776	0.945	0.942
	D2	0.927
	D3	0.880
	D4	0.882
	D5	0.885
	D6	0.867
Business obstacles	A4	0.911	0.717	0.903	0.809
	A5	0.787
	A6	0.837
Access to finances	B1	0.885	0.770	0.906	0.851
	B3	0.934
	B4	0.808
Globalization impact	C1	0.883	0.743	0.930	0.914
	C2	0.883
	C3	0.892
	C4	0.851
	C5	0.798
Government support	G1	0.813	0.695	0.962	0.893
	G4	0.860
	G5	0.681
	G7	0.936
	G8	0.858
Financial institutions	H2	0.842	0.775	1.019	0.945
	H3	0.899
	H4	0.926
	H5	0.921
	H6	0.886
	H7	0.803

. These results indicate that the measurement model is acceptable.

4.5. Convergent Validity

Convergent validity was assessed based on an AVE of more than 0.5 and a CR of 0.70 or higher [65]. The findings demonstrate that all products had loads greater than 0.60. However, nine items were discarded due to inadequate loading values. All remaining elements were loaded within the range of 0.68 to 0.94 into their respective structures, as indicated in Table 3 and Figure 2. The values of AVE and CR were found to be appropriate, supporting convergent validity.

4.6. Discriminant Validity

Discriminant validity was evaluated using Fornell and Larcker criteria, cross-loading, and the heterotrait–monotrait ratio (HTMT). According to the Fornell and Larcker criteria in

Table 4. Fornell–Larcker criterion.

	Access to Finances	Business Obstacles	Financial Institutions	Globalization Impact	Government Support	Islamic Endowment (waqf)’s Role
Access to finances	0.877
Business obstacles	0.131	0.847
Financial institutions	−0.301	0.071	0.881
Globalization impact	0.379	0.351	0.092	0.862
Government support	−0.101	0.104	0.219	−0.250	0.834
Islamic endowment (waqf)’s role	0.197	0.155	0.278	0.419	−0.177	0.881

, the discriminant validity of the constructs was determined.

Ref. [66] demonstrated that the Fornell–Larcker criterion and cross-loadings examination approaches may not reliably identify the absence of discriminant validity in typical research situations. However, if the HTMT value is less than 0.90, discriminant validity between two reflective constructs is established [67] All values in this study were recorded to be lower than 0.90, indicating acceptable discriminant validity. The results of HTMT are reported in

Table 5. HTMT criterion.

	Access to Finances	Business Obstacles	Financial Institutions	Globalization Impact	Government Support	Islamic Endowment (waqf)’s Role
Access to finances
Business obstacles	0.203
Financial institutions	0.338	0.098
Globalization impact	0.445	0.410	0.104
Government support	0.120	0.135	0.260	0.253
Islamic endowment (waqf)’s role	0.214	0.176	0.256	0.436	0.177

.

4.7. Structural Model

To test the proposed research hypotheses, path coefficients and their corresponding t-values were generated through bootstrapping sub-samples with 5000 cases, as suggested by [68]. The results are presented in

Table 6. Results of structural equation mode.

Hs.	Path Relationship	Std. Beta	t-Values	p-Values	F2	R2	VIF	Results
H1	Business obstacles -> Islamic endowment (waqf)’s role	0.104	0.302	0.763	0.001	0.277	1.223	Rejected
H2	Access to finance -> Islamic endowment (waqf)’s role	0.090	1.966	0.049	0.032		1.426	Accepted
H3	Globalization impact -> Islamic endowment (waqf)’s role	0.092	2.901	0.004	0.064		1.608	Accepted
H4	Government support -> Islamic endowment (waqf)’s role	0.105	1.615	0.106	0.033		1.194	Rejected
H5	Financial institutions -> Islamic endowment (waqf)’s role	0.087	3.952	0.000	0.129		1.249	Accepted

and Figure 3. The R2 for the structural model is 0.277, indicating that 27.7% of the total variance in Islamic endowment (waqf) benefits was explained by business obstacles, access to finance, globalization impact, government support, and financial institutions. To simplify, the independent variables explain 27.7% of the variance in the role of waqf towards SMEs’ sustainability. While this value suggests low explanatory power, it highlights the potential influence of additional factors not captured in the current model. Future studies could explore other determinants to further enhance the model’s explanatory capacity. The analysis results in Table 6 indicate that three hypotheses (H2, H3, and H5) were accepted, namely access to finance, globalization impact, and financial institutions. Conversely, business obstacles and government support were found to be insignificant predictors.

Furthermore, a multicollinearity test was conducted, revealing that the variance inflation factor (VIF) for the independent variables was less than 2, implying no multicollinearity issues [66]. Addressing the concern of common method bias, a test for full collinearity was performed following the suggestions of [69]. In this method, all variables were regressed against a common variable, and since the VIF was lower than 3.3, no bias from single-source data was identified. The analysis indicated that single-source bias was not a serious issue with these data.

Additionally [70] established a standard for measuring the effect size (f2) at the structural level, defining 0.02 as a small effect, 0.15 as a medium effect, and 0.35 as a large effect. In structural models, effect magnitude is a crucial indicator of statistical power, typically estimated for a specific coefficient of association and sample size. Table 6 reveals that all independent variables have a large effect on the dependent variable, with globalization impact having the most substantial effect on Islamic endowment (waqf).

5. Discussion

The findings indicate a positive and significant relationship between access to finance, globalization impact, and financial institutions with the role of Islamic endowment (waqf) in SME development. While the results highlight the significant roles of access to finance, globalization impact, and financial institutions in waqf adoption, the study also identifies limitations. For instance, H₁ (business obstacles) and H₄ (government support) were not supported, suggesting that these factors may not directly influence waqf adoption in the context of SMEs. The lack of significant influence of business obstacles could indicate that SMEs perceive waqf as a potential solution rather than as a factor constrained by these barriers. Similarly, the lack of significant government support suggests a gap between policy intentions and implementation, reflecting potential issues such as limited accessibility or inadequate alignment with SME needs.

On the other hand, we accept H₂: There is a positive relationship between access to finance and the role of Islamic endowment (waqf) for SME development”. This suggests that the ability to assess finance enhances the perceived importance of Islamic endowment (waqf) as a tool for sustainable practices. These empirical results further support the earlier theoretical perspective on SME financing challenges such as limited collateral and inadequate credit history, as noted by [15,16]. Strong credit history plays a significant role in enabling SMEs to secure access to finance, which indirectly supports better financial assessment and decision-making. A strong credit history and availability of collateral signal financial stability to potential investors, partners, or stakeholders. This enhances the SME’s ability to assess financing opportunities beyond traditional loans, such as equity financing or partnerships. However, the discussion highlights a lack of implementation, where awareness of waqf as a financing tool remains limited. This suggests that while the theoretical potential of waqf is significant, its practical application requires enhanced outreach and institutional support.

Access to finance can play a crucial role in boosting the role of Islamic endowment (waqf) in SMEs by providing a structured and sustainable source of funding. Typically, Islamic endowment (waqf) funds are intended to be perpetual, with the capital preserved while the generated income supports charitable purposes. This structure ensures a stable and continuous source of finance for SMEs, reducing their dependence on conventional, interest-based loans. This would enhance financial inclusion in both countries. This finding aligns with [22], highlighting the potential use of Islamic endowment (waqf) as a significant source of finance in the Islamic financial system for SME financing. Moreover, Islamic endowment (waqf)-based microfinance [34], Islamic endowment (waqf) crowdfunding platforms [34] Islamic endowment (waqf)-based investment funds, or trusts that support social equity, shared value creation, and socio-economic welfare, including SMEs. By investing in these funds, SMEs can access financing aligned with their values and goals [71]. One practical solution is that SMEs should develop robust financial management systems to effectively assess and manage their financial needs. This involves creating detailed financial plans, including cash flow management, budgeting, and financial forecasting, to ensure they can align with waqf financing structures.

On the other hand, business obstacles and government support are found to be insignificant predictors. While waqf is theorized as a tool for financial inclusion, the results reveal significant gaps in government support and awareness. The finding that “government support” is an insignificant predictor highlights a mismatch between theoretical potential and practical implementation. These gaps suggest that while waqf can address financial inclusion, its impact is limited by inadequate policy support and awareness among SMEs. This implies that while government support is intended to help SMEs, the type or structure of these programs may not be aligned with the specific needs of the respondents. Government support mechanisms for waqf might also not be well-publicized or easily accessible to SMEs. Many entrepreneurs may be unaware of the available government programs. This lack of awareness can lead to underutilization of government support, diminishing its perceived role in fostering the development of SMEs through waqf. Moreover, Islamic endowment initiatives are often seen as solutions to financial barriers, but they might not be sufficiently addressing other critical obstacles such as operational or managerial challenges that SMEs face. If waqf solutions focus primarily on financial aid without addressing broader challenges such as lack of training, innovation, or mentorship, the perceived impact of waqf in overcoming business obstacles might be limited. This could explain why the relationship between business obstacles and waqf funding was found to be insignificant.

Our findings also confirm H₃: “There is a significant relationship between globalization impact and the role of Islamic endowment (waqf) in SME development”. The results illustrate that globalization’s impact would positively influence the role of Islamic endowment (waqf) in SMEs. This aligns with the findings of [38,39,40]. SMEs aiming for the global market see waqf as a bridge to access international opportunities and reduce resource constraints. Globalization may offer opportunities for SMEs using Islamic endowment (waqf) to expand their markets beyond local regions, increasing their customer base and revenues. For instance, waqf funds can be used to develop export initiatives to sectors like halal goods which have a strong demand in global markets. This could include subsidizing halal certifications and funding entrepreneurs at international trade fairs. This can further increase their customer base and revenues, potentially making them more attractive to Islamic endowment (waqf) investors [38]. SMEs that utilize Islamic endowments (waqf) may also face increased competition as globalization makes it easier for businesses to enter new markets. This can make it harder for them to differentiate themselves and attract the attention of Islamic endowment (waqf) investors [40]. Moreover, globalization can create new opportunities for SMEs that utilize Islamic endowments (waqf) to access new technologies and innovations that can help them grow and compete more effectively. Moreover, using waqf resources and open innovation, SMEs can work with outside parties, including academic institutions, non-governmental organizations, and other social entrepreneurs, to jointly develop sustainable solutions. This study’s findings align with previous research emphasizing the critical role of entrepreneurs’ network ties in ensuring enterprise sustainability [72]. The new social financing models, market opportunities, and technological advancements may result from this, promoting social justice as well as shared value creation among SMEs. However, it can also create challenges for businesses that lack the resources or knowledge to adopt new technologies [39].

Waqf institutions can facilitate the expansion of SMEs into global markets by investing in international partnerships, green technologies and eco-friendly practices, export-oriented initiatives, and trade promotion programs to promote long-term sustainability. Offering SMEs access to waqf-based resources for international trade fairs, partnerships, and global supply chains can help them leverage globalization for growth.

Furthermore, our study supports the hypothesis “H₅: There is a significant relationship between financial institutions and the role of Islamic endowment (waqf) for SME development”. Financial institutions play a critical role in facilitating the use of Islamic endowment (waqf) to support SMEs have access to capital that would be otherwise unavailable, enabling them to grow and measure socially inclusive business models. This is especially important. By acting as intermediaries, providing expertise, and creating investment structures, financial institutions bridge the gap between Islamic endowment (waqf) funds and SMEs. SMEs can directly support SDGs 8 (Decent Work and Economic Growth) and 10 (Reduced Inequalities) by fostering social equity, reducing inequality, and creating jobs through waqf-based finance.

Financial institutions assist SMEs in generating shared value by fostering the growth of initiatives that benefit society and the economy. They can, for instance, invest in waqf assets that finance healthcare, education, and environmental sustainability initiatives, which will benefit the companies as well as the communities they serve. This is a crucial component of sustainable business strategies, in which financial success is correlated with favorable social consequences. Financial institutions should also collaborate with the government for waqf development for SMEs.

They can develop financing products such as microfinance loans or crowdfunding platforms specifically designed for SMEs to contribute more effectively to sustainable development [45]. Additionally, financial institutions can invest in Islamic endowment (waqf) properties and other projects beneficial to SMEs [43]. They also assist Islamic endowment (waqf) institutions in identifying and developing commercially viable projects, managing financial aspects, and ensuring compliance with Islamic finance principles [46,47]. Another practical solution is that financial institutions could offer advisory services, mentoring, and technical assistance to waqf beneficiaries, ensuring that SMEs are well-prepared to use the funds effectively. These partnerships can also help improve transparency and compliance with Islamic finance principles, encouraging more entrepreneurs to pursue waqf-based funding. Lastly, financial institutions can provide education and training to SMEs on the benefits of Islamic endowment (waqf)-based financing and investment, helping SMEs understand available opportunities [25].

6. Theoretical and Practical Implications

This study contributes to the existing knowledge by highlighting how these factors respond to the role of Islamic endowment (waqf) in SMEs’ continuous growth. Waqf, as a unique Islamic social finance mechanism can act as an enabler in the entrepreneurial ecosystem. By fostering collaborations between financial institutions, government agencies, and SMEs, waqf-based financing addresses key barriers such as access to finance and globalization challenges. These findings expand the application of the Entrepreneurial Ecosystem Theory by emphasizing waqf’s potential role in creating a supportive environment for SME development.

In terms of practical contributions, policymakers are encouraged to create a more conducive environment for Islamic endowment (waqf) activities and advocate regulations that promote collaboration between financial institutions and SMEs. For instance, policymakers can introduce a standard regulatory framework for SMEs’ waqf financing to ensure its efficient implementation. SMEs are advised to develop a financial plan outlining their goals and objectives, along with strategies for achieving them. Implementing financial management systems can help SMEs track expenses, revenues, and cash flow, enabling them to identify cost-cutting opportunities and enhance financial performance. SMEs can also acquire waqf funds to build export capabilities, such as obtaining halal certifications or participating in international trade expos targeting global halal markets. The study also highlights the need for increased education and training on the benefits of Islamic endowment (waqf)-based financing and investment among SMEs, financial institutions, and the public [25]. Financial institutions can introduce advisory services beyond loan products, such as helping SMEs meet waqf compliance requirements. Moreover, policy makers could focus on integrating new technology, such as digital platforms for Waqf crowd-funding that could broaden SMES’ access, and blockchain technology. which could enhance the transparency and trust in waqf fund management. This allows for higher adoption of waqf and further improvement can be made towards the efficiency of waqf model. Figure 4 shows the summary of the findings of the study.

7. Conclusions

The main objective of this study is to investigate the factors influencing the role of Islamic endowment (waqf) in the development of SMEs in Malaysia and Saudi Arabia. Additionally, the study aims to identify the directions and opportunities for Islamic endowment (waqf) to contribute to SME development. The findings reveal that access to finance, globalization impact, and financial institutions positively influence the role of Islamic endowment (waqf) in SME development in both countries. However, business obstacles and government support showed insignificant influence. By establishing partnerships that tackle both local and global issues, our research shows how cooperation between financial institutions, waqf organizations, and SMEs can help achieve the Sustainable Development Goals, especially SDG 17 (Partnerships for the Goals). In addition to giving SMEs access to vital resources, financial institutions are fostering a more sustainable and equitable global economy.

The study reveals unique challenges for SMEs in each country. In Saudi Arabia, despite efforts to improve the business climate, SMEs face burdensome regulations, including onerous licensing and permission procedures. Additionally, the banking industry’s preference for larger businesses makes it challenging for SMEs to secure adequate funding. Cultural differences and traditional business culture further complicate matters. Future studies should examine how these cultural contexts affect SME access to waqf funding and investigate how waqf can be tailored to fit the entrepreneurial mindset of different cultural groups. In Malaysia, despite government measures to facilitate finance for small businesses, SMEs struggle to access capital, hindering their ability to secure loans or investments.

Islamic endowment (waqf) emerges as a key tool for promoting sustainability, especially for SMEs, encompassing financial support, social development, economic well-being, and sustainable financing models. Leveraging Islamic endowment (waqf) can contribute to the sustainability and growth of SMEs, aligning with broader sustainable development goals.

Despite robust outcomes, the study has limitations, being conducted in a cross-sectional setting. Future research is recommended to explore longitudinal settings and test the model across various industries such as technology startups, agriculture, or halal industries. These insights could offer targeted strategies for Waqf implementation. While the survey instrument addressed general themes relevant to waqf administration, it did not include country-specific terminology or examples. Future studies could explore this area by customizing instruments further to reflect institutional and cultural differences in each country. This study can be further developed by expanding analysis on non-financial barriers. Additionally, considering variables such as culture in future studies is suggested for a more comprehensive understanding of the framework. Moreover, researchers can consider using secondary data due to the practical challenges in the process of data collection.