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Sustainable Islamic SME Financing

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Sustainable Development and Infrastructure

Abstract

What is wrong with as-is SME financing? Funding for small and medium-sized businesses as it is applied today cannot deliver positive results for jobs and economic development. Regardless of the massive SME programs, the issues surrounding SMEs and their potential capacity to contribute to SDGs remain unclear. Financing for SMEs has decades of practice and critical aspects are not much reviewed from Islamic finance perspective. Financing needs of SMEs should be fulfilled with transaction-based financing with asset-based Murabaha, asset-backed Murabaha and Ijara. Cash lending for SMEs with mortgages should be avoided. The deposit banking business model does not support sustainability. Sustainable resource mobilization is possible with a crowdfunding business model and this requires transformation of Islamic deposit banks.

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Notes

  1. 1.

    Gundogdu (2018b).

  2. 2.

    Gundogdu (2018b).

  3. 3.

    Abdulsaleh and Worthington (2013).

  4. 4.

    Gundogdu (2019b).

  5. 5.

    Esho and Verhoef (2018) provided an integrated literature review.

  6. 6.

    Predkiewicz (2012).

  7. 7.

    Cressy (2002).

  8. 8.

    Predkiewicz (2012).

  9. 9.

    Abdullah and Manan (2011).

  10. 10.

    Collier (2009), Dong and Men (2014), Sacerdoti (2009), and Vasilescu (2010).

  11. 11.

    Peria (2009) and Sacerdoti 2009).

  12. 12.

    Beck (2007), Berger and Udell (1998), and Dong and Men (2014).

  13. 13.

    Dong and Men (2014), Sacerdoti (2009), and Vasilescu (2010).

  14. 14.

    Berger and Udell (1998), Dong and Men (2014), and Wagenvoort, 2003.

  15. 15.

    Stiglitz & Weiss (1981).

  16. 16.

    Abor (2007), Quartey (2003), Eniola and Entebang (2015), Hanedar et al. (2014), Khan (2015), Nguyen and Luu (2013), and **ao (2011).

  17. 17.

    Harrison and Baldock (2015), Lawless et al. (2015), Ono and Uesugi (2014), Vermoesen et al. (2013), and Wehinger (2012).

  18. 18.

    Berger and Udell (1998) and Moritz et al. (2016).

  19. 19.

    Beck and Cull (2014) and Quartey (2003).

  20. 20.

    Wagenvoort (2003).

  21. 21.

    Harwood and Konidaris (2015), Revest and Sapio (2013), and Sestanovic (2015).

  22. 22.

    Cassar (2004) and Abdulsaleh and Worthington (2013).

  23. 23.

    Hanedar et al. (2014) and Nguyen and Luu (2013).

  24. 24.

    Abdulsaleh and Worthington (2013).

  25. 25.

    Lima et al. (2020) and Abdulsaleh and Worthington (2013).

  26. 26.

    Ibrahim (2003).

  27. 27.

    Abdulsaleh and Worthington (2013) provides the accounts of Islamic finance products for SMEs.

  28. 28.

    Habib (2011).

  29. 29.

    Gundogdu (2019a).

  30. 30.

    Paul (2020).

  31. 31.

    Berger and Udell (2002).

  32. 32.

    Gundogdu (2019a).

  33. 33.

    Gundogdu (2016a).

  34. 34.

    Gundogdu (2010).

  35. 35.

    The European Commission defines SMEs as those enterprises employing fewer than 250 persons that have a turnover of fewer than 50 million euros and/or a balance sheet total of fewer than 43 million euros (Commission Recommendation 2003/361/EC). SME defined in a developed country can be deemed as a big corporation in LDMCs.

  36. 36.

    Gundogdu (2019a).

  37. 37.

    By Oseni et al. (2013).

  38. 38.

    Refers to Italy’s emerging SME mini-bond market as cited in Altman et al. (2020).

  39. 39.

    Maizaitulaidawati and Razali (2019).

  40. 40.

    Gundogdu (2018b).

  41. 41.

    Gundogdu (2009).

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Authors and Affiliations

  1. Islamic Development Bank, Jeddah, Saudi Arabia

    Amadou Thierno Diallo

  2. Islamic Development Bank, Jeddah, Saudi Arabia

    Ahmet Suayb Gundogdu

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  1. Amadou Thierno Diallo
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Correspondence to Ahmet Suayb Gundogdu .

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Diallo, A.T., Gundogdu, A.S. (2021). Sustainable Islamic SME Financing. In: Sustainable Development and Infrastructure. Palgrave Studies in Islamic Banking, Finance, and Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-67094-8_4

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  • DOI: https://doi.org/10.1007/978-3-030-67094-8_4

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