Innovative Profit-Sharing-Based Financing Innovations in Sharia Financial Institutions in Improving SME Competitiveness: Empirical Study on Business Actors in Aceh After the Implementation of Qanun LKS

Abstract

Following the implementation of the Qanun on Islamic Financial Institutions (LKS), this study seeks to examine the innovation of profit-sharing-based funding in Islamic financial institutions in enhancing the competitiveness of small and medium businesses (SMEs) in Aceh. In many districts/cities in Aceh, this study employs a quantitative approach using a survey methodology of SMEs who are clients of Islamic financial institutions. The impact of profit-sharing-based financing innovation on enhancing SME competitiveness was assessed using multiple linear regression models, with productivity, product differentiation, and market growth potential all being used as metrics. According to the findings, profit-sharing-based financial innovation has a clear and beneficial impact on enhancing the competitiveness of small and medium-sized enterprises. Digital Innovation (X1) has the strongest influence with a regression coefficient of 0. 385 (Sig. 0. 000), to be exact. Hybrid Contracts (X2) make a substantial contribution with a coefficient of 0. 294 (Sig. 0. 001), and Productive Partnerships (X3) have a significant impact with a coefficient of 0. 315 (Sig. 0. 000). These advancements account for 45. 6% of the variation in the competitiveness of SMEs in Aceh, as shown by the Adjusted R Square value of 0. 456. Islamic financial institutions that employ creative strategies like digital-based musyarakah financing, hybrid contracts, and productive partnership models are able to improve SMEs' access to capital and operational efficiency. The implications of this study highlight the need to create flexible Islamic financial innovations in Aceh that are based on the demands of the actual sector in order to establish an inclusive Islamic economic environment.