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Research Project - Aspects Of Islamic Financing In SMEs

   

Added on  2020-02-14

18 Pages4605 Words86 Views
Applications of Islamic Instruments inthe Financial Industry
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TABLE OF CONTENTSIntroduction......................................................................................................................................1Introduction to SMEs and its importance to any economy..........................................................1SMEs using Musharakah.............................................................................................................2SMEs using Mudarabah...............................................................................................................3How can Waqf Money be used in helping SMEs........................................................................5The Role zakat can play in SMEs................................................................................................7Analyse how Islamic finance can use the concept of micro Finance to encourage SMEs..........8How Islamic joint capital venture could be the way forward in Islamic investment..................8How Islamic Financing (Musharakah and Mudarabah contracts) differ from conventionalLending........................................................................................................................................9Evaluate the effort in the GCC and Malaysia to encourage SME’s development.....................10Conclusion & Recommendations..................................................................................................12References......................................................................................................................................14
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LIST OF FIGURESFigure 1: Simple Mudarabah Structure............................................................................................4Figure 2: Waqf Financing Model....................................................................................................6Figure 3: Anchor Companies and the number of Vendors under the VDP...................................11Figure 4: Local vendors doing business with Japanese firms........................................................12
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INTRODUCTIONIn the present era, small medium enterprises play significant role in creating employmentas well as enhancing the growth of gross domestic products in a developing country. However, inorder to grow and positively contribute towards the economy, SMEs face various constraints(Jaffar and Musa, 2013). In this, one of the major constraints faced by small medium enterprisesis lack of finance. Herein, to resolve such constraints Islamic financing portfolios provides greatdeal of assistance to the entrepreneurs operating in developing nations like Mena (Middle Eastand North Africa). In the present research project, investigator focuses on various aspects about Islamicfinancing that assist SMEs to enhance their business operations and generate higher employmentopportunities for the nation. Furthermore, concept of Musharakah and Mudarabah has beenfocused on and the role Zakat plays in SMEs. Thereafter, researcher illustrates the concept ofmicro finance to encourage SMEs. Lastly, efforts in the GCC and Malaysia to encourage thedevelopment of small medium enterprise. On the basis of whole study, recommendations toimprove the existing role Islamic finance in the sustainable development of small and mediumenterprises. Introduction to SMEs and its importance to any economyIn general, small medium enterprises are highly recognized as the engines of economicgrowth and the key contributor to the sustainable gross domestic producer (GDP) around theglobe. However, SMEs mainly operates under the manufacturing and service sectors whichencourages the employment opportunities for both skills and unskilled personnel’s. In recenttime, it has been identified that, market conditions and regulatory environment are not in supportto the growth of SMEs and access to formal finance which is one of the major obstacle orhindrance that companies operating at small level faces (Aris and et.al, 2012). Furthermore, theSME sector forms the backbone of economic development, private sector employment, capitalinvestment and GDP growth. Despite of their great importance to developing economy, SMEsface major concerns regarding inadequacy of funds or lack of access to other banking services.However, this is the only major reason due to which companies operating at small scale leveltend to concentrate on less capital intensive sectors like retail and wholesale trade. By the meansof this not only, development of small enterprises is restricted but also the economic activities ofdeveloping nation affects negatively. 1
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