INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6.

November, 2010, Part I

ROLE OF ISLAMIC MODES OF FINANCING FOR GROWTH

OF SMEs A CASE STUDY OF ISLAMABAD CITY
1 2 3
Nazima Ellahi , Dr. Tayyab Alam Bukhari , Mehwish Naeem
1 2
Lecturer Department of Economics, Associate Professor,
3
Head Department of Research and Development, Department of Banking and Finance,
Foundation University College of Liberal Arts and Science, Rawalpindi (PAKISTAN)

ABSTRACT

With growing literature on Islamic finance and Islamic modes of financing a number of research studies
have been conducted to analyze and investigate the role of Islamic modes of financing for the growth of different
sectors of economy. SMEs and MMEs are the key determinants of economic growth; they contribute and enhance
the overall productivity through creating the employment opportunities. Moreover they help to reduce poverty and
create innovations along with values for future. This research is a field survey which has been conducted to
analyze the role of Islamic modes of financing for growth of SMEs and MMEs in the city of Islamabad. Data on 20
SMEs and 05 Islamic banks is used to assess the importance of Islamic modes of financing for growth of SMEs
which further contribute to enhance economic growth.

Key words: Islamic finance; Islamic modes of financing; SMEs; Islamabad

1. INTRODUCTION

Small and Medium Enterprise has been defined by State Bank of Pakistan as “An entity, not a public limited
company which have number of employees ranging from 50 to 250, and also having total assets, if it is a trading or
service concern at costs excluding land and building up to Rs.50 million, and a manufacturing concern having total
assets up to Rs.100 million and any concern with net sales not exceeding Rs.300 million as per latest financial
statement”. A vast body of economic literature states that Small and Medium Enterprises (SMEs) play an important
and significant role in the development of economic activity of a country.
In developed as well as developing countries of the world SMEs are considered as a life-line of economic
growth as these are providers of low cost employment. They assist in development at local and regional level
through enhancing the activities of small scale industries in rural areas and are also responsible for fair distribution
of wealth by promoting regional diffusion of economic performances. Literature supports the argument that SMEs
contribute to raise export revenues as the products are produced by more labor intensive techniques, through
which it causes a positive impact on balance of trade is achieved.
With the introduction of economic reforms in 1990, the Pakistan economy possesses a potential for long
term development. The SMEs sector is still not well established because there are total 3.2 million SMEs which are
lagging behind to achieve optimum growth. . The features attributed to the less than optimal performance of SMEs
are negligence at institutional level, deficiency of adequate deposits, inappropriate business providers, and shortfall
of proper marketing facilities along with political instability and inefficient labor union activities. There is ample
evidence that, this sector has not been able to fulfill the product requirements at national as well as international
market.
Against this backdrop, several measures have been proposed by policy makers to improve the efficiency of
this sector to achieve national goals. One of the solutions suggested in this regard is to provide them with secure
equity capital ensured by Islamic modes of financing. Islamic banks and institutions of Islamic markets have a
number of modes of financing which provide services for trade financing, sales and purchase and for purpose of
1
investment. Out of a number of modes most widely used are Musharakah (partnership), profit-sharing
2 3 4 5 6
(Mudarabah) , cost-plus financing (Murabaha) , leasing (Ijarah) , forward sale (Bai-salam) and (Istisna) . These
instruments serve as the basic building blocks for the development of SMEs.
1.1 Objectives of the study
This research study is a field survey conducted to test the “Role of Islamic Modes of Financing in SME and
MME Growth”. The sample for this study comprises of 20 SMEs using Islamic modes of financing and 05 banks
that are providing Islamic financial services. Data is collected through questionnaires, specific objectives include:
 To find the percentage of SMEs using Islamic modes of financing.
 To check the main factors, due to which SME prefer to use Islamic modes of financing.

1
When under a joint business two parties combine their factors in a business, agreed to share rights and obligations and equally
share profit and loss relating to business.
2
A special type of business in which one party provides capital called Rab ul Maal to the investor(who trades and manages
business) and profit is shared according to a pre decided ratio while the all the losses are borne by the owner of capital.
3
A type of sale contract in which profit margin is decided mutually between buyer and the seller.
4
Ijarah (leasing) is a contract in which on the usufruct of an asset, while the asset remains under the ownership of its owner.
5
Bai salam (Forward sale) fulfills the needs of seller by providing it full payment in advance.
6
A special type of contract when transaction of a good takes place before it is manufactured.

B a k u , A z e r b a i j a n | 161
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

 To check which Islamic instrument is widely used by SMEs for fulfilling their current assets, fixed assets or
set up financing requirements.
 To analyse the distinctive features provided by Islamic instruments that help in growth of SMEs.
 Checking the level of awareness of SMEs about Islamic instruments and their uses.
 To find out the problems being faced by Islamic banks in dealing with SMEs client.
 Finding the maximum percentage increase in the earnings of SMEs after adopting Islamic instruments.
To find out what additional features should be provided by Islamic banks in order to attract the SME which
are using conventional mode of financing.
This study comprise of various sections. Section 2 is regarding review of literature on Islamic modes of
financing and their role in SMEs growth. Section 3 provides overview of Small and Medium enterprises in Pakistan.
Data and methodology is discussed in section 4, while section 5 presents the analysis of findings along with
results. Section 6 is reserved for conclusion and recommendations.

1.2 Significance and delimitations of the study

This study is a step to make awareness among prospective borrower of SME finance, underserved groups,
farmers and small entrepreneurs about the real benefits of Islamic financing. Sooner or later, they will switch over
to Islamic financing as they are unable to pay high interest rates, which is a characteristic feature of conventional
funding agencies. It would also help in establishing the interest free financing in banks. It is delimited to banking
sectors and SMEs situated in Islamabad city. Only the contribution of the SMEs owners or entrepreneurs and SME
relationship manager will be under taken.

2. REVIEW OF LITERATURE

Economic activity is diversified when SMEs play their efficient role, especially through creating employment
opportunities. According to a census (2002) conducted by Federal Bureau Of Statistics , SMEs contribute over 30%
to GDP , 25% in exports earning besides sharing 35% in manufacturing value addition thereby making them a
potential source of sustainable growth and development. On the same lines a study by Mohsin (1995) tried to
investigate the concept of small business economics in Islam. it argued that low progress and low intensification of
SME and MMEs are due to commercial bank practices prevailing in general, administered interest rate, high
1
burden of collateral guarantees, the provision of funds to large firms . This study evaluated a market rule that,
smaller the number of borrowers, the more risky is lending to them. Therefore, SMEs are considered as highly risky
entities to lend funds. Final conclusions can be summarized that SMEs and MMEs require equity capital through
Islamic modes of financing.
Sapoadia (2005) analyzed Micro Enterprise (ME) and argued that they form a broad range of firms, which
are employer of over a hundred people. Clients or the users of Micro enterprises are usually low income people
who do not have access to advanced financial sector institutions. Shopkeepers, service providers, artisans, street
vendors, construction, transportation companies, auto-parts manufactures, consumer goods dealers constitute their
customers in urban areas while in rural sector small farmers avail their services. Interest free services in micro
credit institutions are considered as a success in financial sector, Rehman (2002) investigated and argued that
interest-free micro credit system provides a detailed share of profit to MMEs for their sustainability and growth. It
study highlighted that promotion of business and moral integrities, risk management and a close monitoring system
are the key characteristics of Islamic instruments which help in growth of MMEs.
Mustafa and Khan (2005) studied and found that a technological innovation in most of the developed
countries is carried through growth of their small and medium enterprises, revenue growth and their capacity to
generate employment. The study suggested that, for Pakistan same trend is existent. But to achieve higher
benefits a shift is required to enable SMEs and other departments work efficiently. It will create a non-conducive
business environment for SMEs and hence leading to long run economic growth. Highlighting the importance of
SMEs for growth Verheugen (2005) conducted that Small and Medium-Sized Enterprises (SMEs) are the engine
for economic growth. The growth of this important sector of economy opens job creation facilities, instigates
entrepreneurial spirit and innovation, moreover it fosters competition. The new SME definition represents a major
step towards an improved business environment for SMEs and aims at promoting entrepreneurship, investments
and growth. Trade Finance press abstract (2005) stated that Islamic instruments can be very helpful for the growth
of MME, as in Islamic banking loans are replaced by a contract of sale and profit-sharing and some other
instruments of Islamic financing. In such contracts bankers proved to be a true partner to their customers, sharing
the risks and hence the benefits. The study discussed that Malaysia Islamic banks have successfully utilized
Islamic instruments to finance small projects of farmers by using Mudarabah and Musharakah. It also offered
supervision and consulting services to small farmers. The bank under study also used Mudarabah and Musharakah
to finance working capital requirements of entrepreneurs in agriculture sector and other small and medium sized
firms.
Brief review of literature revealed that almost all the scholars unanimously agree that Islamic modes of
financing are of vital importance in the SMEs growth and this sector should be given considerable attention to
contribute for development and growth by instigating modes of Islamic finance.

1
Because they involve low risks.

162 | www.ijar.lit.az
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

3. BRIEF REVIEW OF SMEs and MMEs IN PAKISTAN

Literature on growth suggests a positive and robust link between flourishing economy and growing sector of
MMEs as well as SMEs, because of consensus that they play a vital role for promotion of economic activity.
Handbook on SME state bank provides an argument that a number of larger enterprises have their origin in small
and medium enterprises.
In 1998, the government of Prime Minister Nawaz Sharif became familiar of SMEs' economic importance
and they form a Small and Medium Enterprise Development Authority (SMEDA) to support and enhance the
activities performed by SMEs in Pakistan. Still there is a lack of recognition of their importance at national level and
there is no official definition of SMEs applicable across the board in Pakistan. Different departments and
organizations define SMEs in accordance with their functional ease rather than market situation. SMEDA is a
1
significant initiative for promoting the development of this sector. This authority has taken a series of measures for
enhancing the competition and overall efficiency along with productivity.
According to Economic Survey 2009-10 increase in real GDP is the courtesy of robust performance of large
scale manufacturing and services sector. Even though the large scale manufacturing registered 15.4% growth but
small and medium enterprises (SMEs) is the core issue in the country’s progress and especially for the prosperity
th
of masses that are surviving with low scale income due to which Pakistan ranks 147 out of 174 countries on
Human Development Index (Saeed,2005).
SMEs are engaged in employing about 80% of labor force from non-agriculture sector, they capture 25%
contribution to export of manufactured goods along with 30% share in GDP, which is achieved as an outcome of
their business efforts. The real benefit, which we can get from their growth, is provision of opportunities to the
2
people of Pakistan for raising their standard of living (Economic Survey, 2009-2010).

100
80
60
40
20
0
Employement GDP Value Added Exports
Earnings

Fig. 3.2. Share of SMEs in Manufacturing Sector (%age)

Source: Pakistan Economic Survey 2008-09

The distribution of 50% of the total activities of SMEs is given below in figure 3.3 which is concentrated in
five sub-sectors; grain milling, cotton weaving, wood and furniture, metal products and art silk. For the past three
decades, the fastest growing export industries have been dominated by the SMEs. Cotton weaving and grain
milling are among the highest share holders.

Share of Key SME Sub sectors in Pakistan

40
35
30
25
20
15
10
5
0

Fig. 3.3. Share of Major sub sectors in Pakistan

Source: Pakistan Economic Survey 2008-09

1
During 2009-10 20 projects of about Rs.2, 215 million have been approved by the Government for SMEDA. These nclude
projects in sports, agro based industry, leather, foundry, glass products and light engineering sectors business and display
facilities for SMEs.
2
http://www.bizomer.com/role-of-smes-in-pakistan.html

B a k u , A z e r b a i j a n | 163
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

4. METHODOLOGY, DATA AND TECHNIQUES

The research has been carried to develop the awareness about Islamic modes of financing which are used
by Small and Medium Enterprises. This study is conducted to test hypothesis and to develop a relationship
between the dependent variable “role of Islamic modes of financing in Small and Medium Enterprises growth” and
1 2 3
the independent variables “fixed assets financing , setup financing , current assets financing , business
4 5
development services , and risk management ”. Furthermore, the effects of an intervening variable “awareness and
willingness to use Islamic modes” and a moderating variable “availability of Islamic modes” will also be studied. It is
a field study which can be considered as cross-sectional or one-shot as the research data is collected only once
but over a period of two months. The units of analysis are individual Small and Medium Enterprises seeking finance
through Islamic modes, following the objectives.
This research is concerned with Small and Medium Enterprises which have grown or have expanded their
operations as a result of using Islamic modes of finance and the banks providing Islamic modes of financing. The
population is specified as all the Small and Medium Enterprises and banks operating within the geographical
6
territory of Islamabad. The sample for this study is comprised of 20 SMEs using Islamic modes of financing and
7
five banks that are providing Islamic finance. Questionnaires were self-administered in order to remove any
difficulties while responding to them. The data analysis in this research report includes; (i) Measure of central
tendency and dispersion and (ii) Hypothesis testing using qualitative techniques.

5. FINDINGS AND RESULTS

Major findings are classified into two sections. Section A provides findings regarding banking sector, while
section B is providing analysis of findings about SMEs sector

A. BANKING SECTOR

 40% of the clients use Islamic instruments because of prohibition of element of riba, 40% prefer because
funds are not available through conventional sources while remaining 20% attribute it to other reasons like profit
and loss sharing etc.
 Less than 40% of 60% clients of islamic banks use islamic modes of financing, out of these clients 45%
clients are from agriculture sector, 10% consumer goods dealer and 25% auto part manufacturers use these
modes while rest of 30% are from all other sectors.
 30% to 40% of clients of 60% of Islamic banks finance their current assets through using Islamic modes.
45% of clients of MMEs use ijarah as mode of financing, mudarbah is used by 10% and remaining 45% is financed
by all other financing modes.
 Major percentages of clients finance their fixed assets using Islamic modes of financing. Moreover it is
observed that Islamic modes of financing are not properly advertised. Furthermore, risk sharing and prohibition of
riba is the element which is responsible for the success of Islamic banking sector.

B. SMEs SECTOR

 60% of the SME require financing for set up financing, imports/ exports financing and raw materials
financing, while 40% of the remaining require for other sorts of financing. 40% of the SMEs prefer Islamic modes of
financing because they provide quality services, and 35% prefer because they are providing funds in accordance to
the Islamic rules. Remaining the people prefer due to other some reasons.
 40% of the SMEs use Islamic modes for imports exports financing, raw material financing while rest of the
financing is done by using conventional modes of financing. 55% SMEs use Islamic modes because of religious
mind, prohibition of element of riba and rest of them is financed due to unavailability of conventional funds for
SMEs. Majority of people don’t use Islamic modes because they have less knowledge of the Islamic banking
system and Islamic modes of financing. They are of the view that Islamic modes of financing are not properly
advertised

6. CONCLUSION AND RECOMMENDATIONS

After analysis of results it is understood that most of the SMEs utilize their funds for car financing, setup
financing, working capital, equipment, raw material and other financing. Prohibition of interest in Islam is the main
reason for the introduction of Islamic banking. They prefer bank is just due to religious element, and because funds

1
An asset not readily convertible to cash that is used in the normal course of business. Examples of fixed assets include
machinery, buildings, land and fixtures.
2
Finance that is used for set upping the business.
3
The use of current assets such as cash, debtors, and stock as collateral for a loan.
4
Business development services are training, technology transfer, marketing assistance, business advice, mentoring, and
information, which are aimed at helping small and small entrepreneurs improve the performance of their businesses.
5
Risk management is a process of identifying and evaluating risks and selecting and managing techniques to adapt to risk
exposures.
6
A complete list of SMEs and Islamic Banks is given in Appendix.
7
Sample questionnaire is given in appendix.

164 | www.ijar.lit.az
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

are not available from conventional sector. They prefer to use Islamic modes of financing because these modes
are Riba-free. Application of these modes results in increasing their earnings, job creation, increase in production
and level of living. It may be concluded that main reason due to which less SME are using Islamic modes is lack of
awareness to general public. If the awareness and availability is increased clients will be more willing to finance
their current and fixed assets through Islamic modes and as a result can get benefit of Business Development
Services provided by bank, which would ultimately increase the role of Islamic modes in SME growth by having a
positive relationship between variables.
A set of recommendations is presented to seeks and build the necessary foundations in terms of capacity
building, the provision of infrastructure and regulatory framework development so that objectives of the study are
achieved. The recommendations are therefore designed as follows:
1. Existing bank regulations in Pakistan are based on conventional banking model which is western
adopted which is based on interest. Therefore, SMEs get loans from conventional banks on high interest rate which
is very difficult for them to repay within stipulated time. So, for the SMEs, it will be more appropriate that a uniform
regulatory and legal framework growth supportive of Islamic modes of financing and SMEs must be developed.
2. Sound and well defined accounting procedures and standards compatible with different nature and
treatment of Islamic modes of financing for information disclosure, building investors’ confidence and monitoring
system needs to be determined.
3. There are five schools of thought. Each school has its own interpretation about Islamic modes of
financing. Therefore Islamic banks have formed their own religious boards for guidance and no uniformity is seen
over Islamic modes of financing concepts. This problem can be addressed by forming uniform council,
representing different schools of thought to define cohesive rules and to expedite the process of introducing new
products.
4. Create awareness among the public in general and SMEs in particular on the concept and advantages
of Islamic modes of financing. The number of specialized Islamic banks must be increased to simulate competition
and for benefiting SMEs.
5. Since Pakistan is an agrarian country, therefore branches of Islamic banks should be established
especially in rural areas for benefits of farmers from Islamic modes of financing like Bai-Salam and Ijarah.
6. Research and Development (R&D) efforts should be intensified in the field of Islamic banking and
finance. This would open new and innovative ways for SMEs and they would eventually grow.
7. Encourage the application of Mudarabah and Musharakah financing via the setting of special fund or
subsidiary to undertake these modes of financing to facilitate SMEs.
Establish a Shariah Commercial Court (SCC) dedicated to deal with legal matters of Islamic banking and of
SMEs. For that purpose, awareness and training programs for judges and lawyers to be conducted by training
institutions in consultations with judiciary and bar courts.

REFERENCES

1. AAOIFI (2004-5a), Shariah Standards.

2. AAOIFI (2004-5b),”Accounting, Auditing and Governance Standards for Islamic Financial
Institutions”.
3. Al-Kaff, S.H,A,R.(1985), “Al-Murabaha in theory and Practice”, Islamic Research Academy,
Karachi, p.60.
4. Al-Kasani,Alauddin Abu Bakr Bin Masud(1993), “Badai Al-Sana I Fe Tartib-Al- Sharai”, H.M.Saeed
Company, Karachi.
5. Al-Marghinani (1957), Al-hidaya,permier Book House, Lahore, p.282.
6. Ayub.M. (2007), “Understanding Islamic Finance”, John Wiley and Sons Ltd, England, pp. 213-343.
7. Al-Sarakhsi, Shamsuddin Abu Bakr Muhammad Bin Abe Sahl (1980), “Al Mabust”, Maktaba Al
Saadah, Egypt, vol.12, p.18.
8. Badr El-Din A. Ibrahim (1985), “Poverty Alleviation via Islamic banking Finance to (MEs) in Sudan”,
Trade Finance Press, pp.54-62.
9. Gafoor, A.L.M. Abdul (1995), “Interest-free Commercial Banking”, Apptec Publications, Groningen,
the Netherlands, pp.44-77.
10. Ghifari, N.M and Muzaffar, M.(1984), “Ijarah And Its Modern Application”, I.I.I.E, Islamabad, p.30.
11. Gulaid, A.M. (1995), “Financing Agriculture through Islamic Modes and Instruments:Practical
Scenarios and Applicability”, , pp.5-15.
12. Hasanuz Zaman, S.M.(1991), “Bai Salam: Principles And Practical Applications”, Islamic Studies,
30 (4), Winter.
13. Ibn Qudama, Abu Muhammad Abdulah Bin Ahmad (1367 AH), “Al Mughni”, Darul Manar, Egypt,
vol.5.
14. Jan, A. Ullah (2002), “The Only Way to Address Poverty”, The Nations Newspaper.
Mohsin, M. (1995), “Economics of Small Business in Islam”, Islamic Research and Training
Institution (IRTI), pp.1-68.
15. Rehman, F. (2002), “Interest Free Micro Credit Program (IMCP) - Designed for Urban Areas of
Pakistan”, Emerald Group Publishing Limited, vol.26 (1), pp.44-54.

B a k u , A z e r b a i j a n | 165
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

16. Sapovadia, V. K. (2005), “The Pillars of a Tool to Socio-Economic Development”, Social

Science.Research Network, vol.13, p.34.
17. Tajjammal, J. (2004), “Musharakah and the Welfare State”, World Applied Science journal,pp. 597-
599.
18. Udovitch, A.(1970), “Partnership and profit in Medieval Islam”, Princeton University Press, pp.174-
175.
19. Usmani, Muhammad Imran Ashraf (2000b), “Shirat Wa Mudaradat”, Asr-E-Hazar Mein, Idaratul
Maaraf, Karachi.
20. Grais, W. (2004) , “Seminar on Comparative Supervision For Islamic and Conventional Finance”,
World bank.
21. Zuhayli,Wahbah (2003), “Financial Transactions In Islamic Jurisprudence”, Dar Al Fikr, Damascus,
Syria, p. 267

166 | www.ijar.lit.az
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

APPENDIX A

List of SMEs which are the subject of this research are:

1. Rasan Travelers, Shop # 3,111 Plaza, Blue Area, Islamabad

2. Margalla Water Co.,I-9, Islamabad
3. Artjfex, F-7 Markaz, Islamabad
4. Safeway Property Advisory Firm, Aabpara, Islamabad
5. Info Traders, Blue Area, Islamabad
6. Cyber Internet services Providers, Blue Area
7. Farzan International Travel Agency, Blue Area
8. Akhter Travels, Blue Area
9. Motor Mania, Blue Area
10. Orbit Aviation, Aabpara
11. Graymutler Communications, F-8 Markaz
12. Usman Travel Agency, Aabpara
13. Falcon Technologies, Blue Area
14. Travel Option, Blue Area
15. Café Alaziz , F-7 Markaz
16. Rawal Marketing Services I-9 Industrial area
17. OBIZ Enterprise, Blue Area
18. Tera Data, Blue Area
19. Anwar Traders, Aabpara
20. Sparkletts, F-8 Markaz

The SMEs using Islamic modes of financing out of above mentioned SMEs includes
1. Rasan travellers
2. Margalla water co
3. Cyber internet service providers
4. Farzan international travel
5. Motor mania
6. OBIZ Enterprise

The SMES which are using Islamic modes but to locate whom was very difficult includes the following:

1. RASKAAR Engineering
2. Khubaib Foundation
3. WebRos
4. Capital Agency
5. Islamabad Feeds
6. Metrocon
7. AceFever
8. Management Service Network

B a k u , A z e r b a i j a n | 167
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

APPENDIX B
Sample of Islamic Bank Questionnaire
Questionnaire

The questionnaire is designed to study “Role of Islamic of Islamic modes of financing in SME growth”. The
information you provide will help us better conduct the research. The information you provide will be kept strictly
confidential.

Name of Bank: _______________________

Designation: ________________________

1. The Why MMEs clients use islamic modes

A. Prohibition of Riba
B. Lack of financing through conventional institutions
C. Vast veriety of services provided by islamic institutions
D. PLS

2. How much of your MME clients finance their operations through Islamic modes of financing

A. <40%
B. 40%-50%
C. 50%-60%
D. >60%

3. The majority of your clients are

A. Farmers
B. Poultry Breeders
C. Auto part manufacturer
D. Construction companies
E. Transportation companies
F. Consumer goods Dealers
G. Shopkeepers

4. How much percent of MMEs are financing current assets through Islamic modes :

A. < 10%
B. 10%-20%
C. 20%-30%
D. 30%-40%
E. >40%

5. Rate the instruments, according to their use:

A. Mudarabah ______
B. Musharakah ______
C. Murabaha ______
D. Ijarah ______
E. Istisna ______

6. The maximum percentage increase in the earnings of MME after becoming your client is
approximately

A. <20%
B. 20-40%
C. 40-60%
D. 60-80%
E. > 80%

7. How much percent of MME clients use Islamic modes of financing for set-up financing:
A. <10%
B. 10%-20%
C. 20%-30%
D. 30%-40%
E. > 40%

168 | www.ijar.lit.az
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

8. Rate the Islamic instrument widely used

A. Mudarabah ______
B. Musharakah ______
C. Murabaha ______
D. Ijarah ______
E. Istisna ______

9. What are the problems faced by islamic banks

A. Little level of their knowledge about business terms and policies

B. Default risk
C. High Administration costs

10. The percentage of MME clients financing their fixed assets through Islamic modes is

A. <10%
B. 10%-20%
C. 20%-30%
D. 30%-40%
E. > 40%

11. Please rate these instruments from 1-5 according to frequency of their use:

A. Mudarabah ______
B. Musharakah ______
C. Murabaha ______
D. Ijarah ______
E. Istisna ______

B a k u , A z e r b a i j a n | 169
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

Sample of SME Questionnaire

Questionnaire

Name of Organization: ________________________

Designation: ________________________

1. What is major activity for which you require financing?

A. For Raw Material

B. For Equipment financing
C. For Car/ vehicle financing
D. For Set up financing
E. For Working Capital Financing
F. For Import/Export financing

2. What are the features provided by bank that causes you to select that bank for fulfilling
your needs?

A. Quality products services

B. Better branching networks
C. Price of services
D. Bank reputation and image
E. Offering products in accordance to Islamic laws

3. Which Mode you are using for such financing:

Conventional
Activity Islamic Mode
Mode
Raw material Financing
Equipment financing
Vehicle financing
Set up financing
Working capital financing
Import/Export financing

4. Which mode you are currently using for depositing your business savings?

A. Islamic mode
B. Commercial bank instruments

170 | www.ijar.lit.az
INTERNATIONAL JOURNAL Of ACADEMIC RESEARCH Vol. 2. No. 6. November, 2010, Part I

If you are using Islamic instruments then please switch towards section 1 otherwise towards section 2 of this
questionnaire:

Section 1

5. What is the reason for your preference to Islamic instruments?

A. No Riba
B. Religious constraint
C. Less availability of finance
D. Loss bearing feature
E. Business development services provided by Islamic banks

6. How do you rate your level of overall knowledge in the Islamic banking system?

A. Very knowledgeable
B. Knowledgeable
C. Understand partially
D. Limited knowledge
E. No knowledge at all

7. Approximately by how much percentage your company earnings/profit increase after

utilizing Islamic instruments

A. <20%
B. 20-40%
C. 40-60%
D. 60-80%
E. > 80%

8. What is the reason for preference to conventional modes of financing?

A. No availability if Islamic instruments

B. No awareness about the benefits of Islamic instruments
C. Willingness to use conventional

9. How do you rate your level of overall knowledge in the Islamic banking system?

A. Very knowledgeable
B. Knowledgeable
C. Understand partially
D. Limited knowledge
E. No knowledge at all

B a k u , A z e r b a i j a n | 171
Copyright of International Journal of Academic Research is the property of International Journal of Academic
Research and its content may not be copied or emailed to multiple sites or posted to a listserv without the
copyright holder's express written permission. However, users may print, download, or email articles for
individual use.