This study investigates the behavior of Islamic microfinance institutions with a focus on identifying their behavioral patterns, the factors that influence them, and their impact on competitive strategies. We adopted a quantitative research approach, combining descriptive and verificative analyses. We collected data through surveys and used Partial Least Squares (PLS) analysis to validate relationships between variables. The results indicate that islamic predominantly adopt Sharia-compliant-compliant strategies, emphasizing appropriate Islamic financial products and marketing techniques. Furthermore, positive organizational behavior fosters dynamic capabilities, which serve as a critical mediator between institutional behavior and competitive strategies. The study underscores the need for continuous strategic updates to maintain competitiveness in the evolving market, with dynamic capabilities playing a pivotal role in these adaptations. These findings enhance the understanding of behavioral dynamics in the sharia microfinance sector and offer significant implications for strategic decision-making and policy development. The research provides novel insights by uncovering the dynamic relationship between islamic behavior and strategic approaches within the context of the Islamic microfinance industry