The interconnectivity between Islamic financial literacy and financial sustainability: evidence from Muslim micro-entrepreneurs in Malaysia

Abstract

Purpose

Financial illiteracy could pose a significant challenge to micro-entrepreneurs. There is a pressing need to foster financial literacy;, therefore, the purpose of this study is to examine particularly how Islamic financial literacy may enhance their businesses toward achieving financial sustainability.

Design/methodology/approach

This study uses quantitative methods. Three hundred (300) questionnaires were distributed to micro-entrepreneurs in three states in Malaysia, namely, Kedah, Kelantan and Terengganu. This study used the partial least squares (PLS) analysis using the SmartPLS 3.2.

Findings

The study found that the most robust Islamic financial literacy factors are financial behavior, followed by financial knowledge and financial attitude .The outcome of Islamic financial literacy, which is financial sustainability, also demonstrates a positive and significant relationship.

Social implications

All variables show a positive and significant relationship toward financial sustainability. Stated differently, micro-entrepreneurs are aware that understanding the basic concepts of Islamic finance may help them achieve long-term financial sustainability

Originality/value

This study incorporates Islamic financial concepts into financial literacy while also assessing demographic aspects like years of business operation and education as moderators, which were not considered by previous studies.