Exploring the sources of Islamic and conventional finance for small and medium enterprises in Saudi Arabia

Abstract

Traditionally entrepreneurs and SME owners requires funding for their ventures. SME financing is one the fast growing sector in finance industry. Since the most of the SMEs owners are innovators or new to the business they do lack of funds for their projects. Due to the lack of fund a shortage of paid-up capitals and credits make Small and Medium Enterprise vulnerable to fluctuation in the supply and demand market economy. This study aims to compare between the Islamic and traditional financing sources for Small and Medium Entrepreneurs in Saudi Arabia to make them aware of the possible alternatives available in both conventional and Islamic financing, their characteristics and advantage and disadvantages of using the both the methods. The research question what is the contribution of Islamic financial products such as “Murabaha ,Musharka, Mudaraba, Ijarah “of small and medium enterprises. The research was using both primary and secondary data. Primary data was collected using a survey, distributed 100 SMEs owners. The results were analysed using the percentages, tables and SPPS software. T-test was to check the hypothesis and Cronbach's Alpha was to check the reliability of the percentage tables. The finding of the study shows that most of SMEs owners prefer Islamic sources of funds and they prefer Ijarah and Murabaha their favorite products