This study aims to analyze the influence of Islamic Human Capital and Digital Competence on employee performance in Islamic small and medium enterprises (SMEs), with Employee Engagement as a mediating variable. An associative quantitative approach was employed, involving 150 employees of Islamic SMEs selected through purposive sampling. Data were analyzed using Structural Equation Modeling based on Partial Least Squares (SEM-PLS) with the assistance of SmartPLS 4 software. The results reveal that Islamic Human Capital and Digital Competence have a significant positive effect on employee performance, both directly and through the mediation of Employee Engagement, with Digital Competence showing the most dominant contribution. Furthermore, both mediation pathways were found to be significant, confirming that work engagement serves as an important connecting mechanism between Islamic values, digital competence, and employee performance. These findings contribute theoretically by integrating spiritual and digital dimensions within an Islamic human resource management framework, while also offering practical implications for Islamic SME practitioners in designing holistic and sustainable human resource development strategies.
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