Abstract
The broad aim of this paper is to make an analogy between conventional banks and Islamic banking in micro-credit and the incentives they may provide for entrepreneurs and small and medium enterprises (SMEs) in a Mauritian perspective? Indeed, in Mauritius traditional or conventional banks are more and more reluctant to give loans to entrepreneurs who are considered as high risk investors (their fragile entrepreneurs may collapse unexpectedly) despite they create jobs and employment. In contrast, in most Islamic countries Islamic banks allow businessmen and investors among others to have loans without interest (or riba) according to sha’ria compliants and tailor made Islamic contracts (mudabara and musarakha) to support their innovations and proposals. Despite Islamic banking is at its burgeoning state it has expanded considerably in most Islamic and Arab countries. Would Islamic banks uproot conventional banks irrespective it is in Islamic countries or Western countries? This paper therefore adds to an already abundant literature on the subject-matter but it enlightens a central issue: would Islamic banking, sha’ria law and Islamic economies be the golden age for entrepreneurs and SMEs in Mauritius and worldwide?
Highlights
Mauritius, located in the Indian Ocean with its 1.3 million inhabitants, and its 92,000 small units are one of the driving forces of the economy of the island creating jobs and employment (210,000), eradicating poverty and is a good support for the socio-economic development of the island especially when the price sugar has fallen down
A number of facilities provided by conventional banks such as loans with interests are strictly prohibited by shar’ia law and Islamic banking and financing such that it meets the expectations of all Muslim community providing islamically acceptable financing modes, loans without interest in all its forms, Profit and Loss Sharing (PLS) methods, equitable and fair distribution of profits according to a predetermined ratio, profit returns for assuming risk undertaken, autonomous and independent entrepreneurs in the management of the affairs of their small and medium enterprises, microcredit facilities such that Islamic banks play a role of partner with its entrepreneurs in a very productive-direct investment
Over and above all Islamic banking provides funds relatively more than traditional banks do to local and young entrepreneurs because they themselves rely on transactional deposits and investment deposits provided there are no economic activities or speculations, entrepreneurs accept an Islamic tax and they prohibit the production of goods and services which are prohibited in Islamic law, customs and traditions or which go outside Islamic concept and patterns
Summary
Mauritius, located in the Indian Ocean with its 1.3 million inhabitants, and its 92,000 small units are one of the driving forces of the economy of the island creating jobs and employment (210,000), eradicating poverty and is a good support for the socio-economic development of the island especially when the price sugar has fallen down. The total value added generated by SMEs is estimated at Rs 45 million contributing to the gross domestic product Despite these figures, it has been found that conventional banks are still very reluctant to give loans to entrepreneurs and SMEs for them to start business. Islamic Micro-Credits and Rationale of the Study: Though SMEs create jobs and employment traditional banks are more and more reluctant to fund entrepreneurs and SMEs whilst Islamic banks provide social contracts without loans but on the principle of PLS. This paradigm shift from conventional banks to Islamic banks will definitely take some time. Would Islamic banking survive in non-Islamic countries and to what extent they may cohabit with conventional banks and other well-implemented legislations borrowed and inspired form French Civil Law or Common Law are questions which are very often overlooked or ignored? Whatsoever, conventional banks are perceived as business institutions while Islamic banking tries to reconcile PLS first corporate social responsibility first into their aims and objectives coupled with material and spiritual satisfaction to all Muslim believers without any exception
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