Does productive waqf improve the welfare of micro-enterprises? Evidence from a PSM–DID model in Indonesia

Purpose This study aims to measure the impact of the productive waqf program developed by Islamic cooperatives on increasing micro-enterprise welfare in Indonesia and provide empirical evidence using the two-step quasi-experimental approach. Design/methodology/approach In total, 235 micro-enterprises, sourced from two Islamic cooperative databases, were used for this study. The sample of micro-enterprises was selected based on criteria and then randomly assigned into a treated group and a control group. This research mainly used the difference-in-difference (DID) method to assess the impact of productive waqf on micro-enterprise welfare. The authors exploited the propensity score matching (PSM) with the nearest neighbor matching algorithm as pre-treatment to DID to address the potential unparallel trend violation and mitigate the selection bias arising from Nazir’s prioritization in selecting the beneficiaries. Findings This research provides empirical evidence demonstrating that productive waqf, in the form of financial grants and stalls, has a significant positive impact on micro-enterprise welfare by increasing income and consumption. This evidence supports the potential of productive waqf to empower micro-enterprises, contributing to sustainable economic development and fostering social justice. Research limitations/implications While this study primarily focuses on the impact of productive waqf on income and consumption, a more holistic approach to welfare measures on micro-enterprises could be achieved by considering additional factors like asset growth, profitability and owner’s well-being. Originality/value Using the two-step quasi-experimental approach (PSM–DID) to isolate the causal effect of productive waqf on micro-enterprise welfare is a novel contribution to the literature.