Impact of Financing on Small and Medium Enterprises (SMEs) Profitability with Moderating Role of Islamic Finance

Saqib Muneer,Azhar Ali,Rao Abrar Ahmad

doi:10.22610/imbr.v9i2.1720

Abstract

Small and medium enterprises (SMEs) are the very significant for the development of economy of the country, grasp the attention of government and policy makers in developed as well as in developing countries. SMEs in Pakistan have their vital role in economic growth. Therefore, it is essential that SMEs have right to use sources of finance. The study used the quantitative approach that was accomplished by survey questionnaires. Two hundred SMEs and seventy bank branches were selected in Faisalabad region in Pakistan, to get response on questionnaires about their financing patterns and effects of Islamic financing as moderator in their fixed assets, set up and current assets financing. The study showed that fixed assets, set up and current asset financing have positive relation with the growth of SMEs and Islamic modes of financing was not behaved as moderator in Faisalabad city in Pakistan.

Highlights

Small and medium enterprises are chief factor for the economic progress in the most of countries weather these are developed or developing countries (Zarook, Rahman & Khanam, 2013; Islam, Yousuf & Rahman, 2014; Zubair, 2014; Mohammed, 2015 a)
First is fixed assets financing, second one is set up financing, third one is current asset financing and the last variable is Islamic mode financing which is used as moderator
The data analysis of the study shows that the small and medium enterprises (SMEs) which are financing their fixed assets through Islamic finance the observed 69.2% contribution in profitability

Summary

Introduction

Small and medium enterprises are chief factor for the economic progress in the most of countries weather these are developed or developing countries (Zarook, Rahman & Khanam, 2013; Islam, Yousuf & Rahman, 2014; Zubair, 2014; Mohammed, 2015 a). Most of the authors such as Harvie and Lee (2002) and Beaver and Prince (2004) explained that the SMEs contribution in job creation, innovation in the market, in exports and in private sector, are very prominent in developed as well as in developing countries. In Arab countries, they increased the job opportunities, develop the skilled work force and gave choices in the market for customer at reasonable cost and improved the quality of product by increasing competition in the market (Alwugayan and Alshimmri, 2010; Emine, 2012). SMEs sector in the Pakistan has tremendous ability to grow and having capability to make Pakistan as regional financial center. It can make the Pakistan as trade hub for investment in private sector. The financing of SMEs through Islamic modes put direct effect on the growth of SMEs (Imam and Kpodar, 2015, Shaban et al, 2014, WB-IDB, 2015)

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Conclusion