Proposing A Model Of Financial Access For Small And Medium Enterprises (Smes) Through Islamic Banking

Abstract

Small and Medium Enterprises play a vital role in the economic development of a country. The SMEs cannot commence their operations due to the unavailability of finance. The objective of this study is to propose a model of finance that has access to the SMEs sector through Islamic banking. International Finance Corporation in 2014 revealed that for SMEs there is a huge financing gap through Islamic banking in nine countries including Pakistan. This study utilizes qualitative and quantitative data for in-depth analyses of said problem. At an initial stage of research, interviews were conducted in the Islamic banking and the SME sector. After conducting structured interviews, questionnaires were developed for the Islamic banking and the SMEs sector by using the responses of respondents. The scales’ validity was tested through a pilot study and the final questionnaires were distributed to respondents of the Islamic banks and SMEs. Quota sampling technique was used for determining the sample size from both sectors. NVIVO 11, SPSS 21 and Edraw Max 7 software were used for data analysis. The total number of questionnaires distributed in the Islamic banking sector were 400. Our proposed model reduced the finance approval process from 30 days to 15 days. This research is helpful for policymakers who can use it for revising the current policies regarding SMEs’ financing in Pakistan.