Dear Suhail Ahmad
Small and medium enterprises (SMEs) are widely recognized as engines of economic growth and key contributors to the sustainable gross domestic product (GDP) of all countries, including developing and emerging economies. SMEs play an important role in creating employment opportunities for both skilled and unskilled workers across many sectors, including manufacturing and service. However, higher costs and strict regulatory environments do not support SME growth and access to finance in the countries they operate.
Most SMEs in Muslim countries operate as sole proprietorships or family businesses. These enterprises primarily engage in cash transactions (due to their small size) and, thus, prefer to acquire funds through other channels. Moreover, a large number of SMEs operate outside urban areas and owners are not financially literate (literacy rates are generally lower in Muslim countries[1]) and thus have limited information regarding their banking needs. They prefer informal funding routes based on trust that offer more flexibility in terms of documentation, repayment, timing, and transactions costs, which formal financial institutions do not provide. This is further aggravated by lack of knowledge of Islamic financial products and solutions by most SMEs. SMEs are generally unaware of Islamic financial products that suit their needs given the complexity of Islamic financing models.
regards
Can refer to the papers like:_
1. Islamic Finance for SMES by Hussein ELASRAG ( Journal ofEconomic and Social Thought )
2. Enhancing Active Participation of SMEs and Islamic Banks Towards Economic Diversification in Oman (by Jamal AlMaimania, Fuadah Binti Johari ) ( Procedia Economics and Finance
3. An Islamic Finance Model for The Small and Medium-Sized Enterprises in France (by Umar A. Oseni, M. Kabir Hassan and Dorsaf Matri ) ( JKAU: Islamic Econ )
Raising capital has always been one of the biggest challenges for the growth and sustainability of SMEs. Islamic finance stimulates SMEs by designing and offering financial products adapted to SMEs, while reducing transaction costs and managing their exposure adequately.
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