Abstract
Small and medium enterprises (SMEs) are playing a vital role in the Pakistani economy but they are facing a major constraint of lack of finance. The financial instruments being offered by Islamic banks can better meet the financial needs of SMEs but investment in Pakistani SMEs sector is not very high. The current study investigates the difference in perceptions among users and non-users of Islamic banking instruments in Pakistani SMEs sector. This is a primary data based study and its sample size comprises of 110 entrepreneurs of SMEs in the twin cities of Pakistan i.e. Rawalpindi and Islamabad. The study has used independent sample t-test for comparing the difference in the mean values of users and non-users of the Islamic banking products to test the hypotheses of the study. The results of the study show that there is a significant difference in perception among SMEs regarding Shariah compliance by Islamic banks, service quality, business development service and level of awareness regarding Islamic banking instruments due to which Islamic banking is not commonly used by Pakistani’s SMEs. This study is helpful to the top management of Islamic banks to devise strategies to clarify the misperception of non-users SMEs management regarding Islamic banking products.
Highlights
SMEs play a vital role in the development of any developing economy like Pakistan as they offer employment generation source and help in poverty alleviation by making improvement in people living standards
The current study has used independent sample t-test in order to identify the difference among SMEs perceptions on dimensions including the level of knowledge, Shariah compliance, business development and quality service offered by Islamic banking
The data is collected from the respondents depict that 37% of the SMEs are using Islamic banking instrument while the remaining 64% are non-users of Islamic banking instruments as depicted in the table below
Summary
SMEs play a vital role in the development of any developing economy like Pakistan as they offer employment generation source and help in poverty alleviation by making improvement in people living standards. SMEs offer job opportunities to minorities like women that are helpful in offering support to their family’s financial burden. SMEs play an important role in the economy of Pakistan but still, it is facing many constraints for its growth as well as the establishment (Hossain, 1998). Some of the main barriers being faced by SMEs include lack of finance (Beck, Demirgüç-Kunt & Maksimovic, 2005) policy issues (Hossain, 1998), lack of support by Government (Kureshi, Qureshi, & Sajid, 2010) and interest rate ceiling (Mohsin, 1995). According to State bank of Pakistan (2016), 67% of the finance being extended to SMEs was used to fulfill their working capital requirement in the JISR-MSSE
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