Islamic finance principles and performance of micro, small and medium enterprises (MSMEs) in Makindye Division Kampala District Central Uganda

Purpose - Micro, small and medium-sized enterprises (MSMEs) are vital for economic growth in developing countries. Yet, little research has explored the link between Islamic principles and MSME performance, especially in Uganda. This study aims to investigate the relationship between Islamic financial principles and MSMEs’ performance in Makindye Division Kampala – Uganda. Design/methodology/approach - This study used a correlational research design involving 86 respondents from 30 MSMEs between January and May 2023. Data collected through questionnaires was analyzed with Statistical Package for Social Sciences, examining three independent variables: ethicality, Halal investment and prohibition ofriba, in relation to MSME performance. Findings - The results revealed significant relationships between these variables and MSME performance. Prohibition ofriba(r= 0.296,n= 86,p= 0.006), Halal investments (r= 0.308,n= 86,p= 0.004) and ethical principles (r= 0.283,n= 86,p= 0.008) all exhibited a statistically significant relationship. Regression analysis withR= 0.405,R2= 0.164 and adjustedR2= 0.134 indicated that all hypothesized variables were significant predictors of MSME performance. Based on findings, this study rejected the null hypothesis, confirming a moderately positive and significant relationship between Islamic financial principles and MSME performance. Originality/value - This study underscores the importance of active involvement from key stakeholders such as the Uganda Halal Bureau, Uganda Muslim Supreme Council, Islamic financial institutions and government agencies in integrating robust support mechanisms for MSMEs into their strategic frameworks. Such efforts could enhance Uganda’s economic landscape, aligning with the experiences of Malaysia and Indonesia in leveraging Islamic principles for economic growth.