Musharakah for Small and Medium Enterprises as an Alternative Financing Mode

Abstract

The current study examines the Musharakah viability as a potential financing method for SMEs in Pakistan. SMEs face exertion to get external financing, that prevents them from continuous development and growth. Small and Medium Enterprises (SMEs) are prone to financial resources constraints as compared to large organizations, who easily manage to meet financial institutions' collateral needs. The study is based on the primary data collected from 101 SMEs who had taken the Musharakah financing facility from the Islamic institutions of Pakistan.  The required data is collected through a structured questionnaire from the SMEs to determine the owner’s satisfaction level with these Musharakah facilities in Pakistan. The findings of the regression model depicted that risk-sharing, access to financing and knowledge have a significant relationship with the level of satisfaction. Besides, the study found a statistically insignificant relationship between the profit and loss sharing, bank participation, and satisfaction level of the SMEs owners in Pakistan. The study concluded that Musharakah financing features could be a viable alternative financing SMEs mode in Pakistan.