Overvew
Problem Statement
Specifically, SME financing sources in Saudi Arabia are not clear in academic research, as there are no researchers who have investigated sources of Islamic and conventional financing. This thesis examines the available sources of Islamic and conventional financing for small and medium enterprises (SMEs) in Saudi Arabia.
Research aims and objective
Research Question
Outline of the study
Literature review
Review of Small and Medium Enterprise
Only a quarter of the population (26.6%) has no knowledge about the existence of Islamic Financing for SMEs. According to the survey, the results were shown based on the ranking of the products, Ijarah.
Review of Financing Smalll and Medium Enterprise
Review of Financing Small and Medium Enterprise in Saudi Arabia
In Saudi Arabia, the presence of Islamic banks is relatively new compared to conventional banks. The first Islamic bank in Saudi Arabia in Al Rajhi Bank was established in the 1970s and is one of the oldest and largest banks in Saudi Arabia. Therefore, the presence and growth of Islamic banks provides an opportunity for the development of SMEs due to the Islamic bank's focus on equity and share of risk.
Thus, Islamic banks serve as an alternative source of capital to Convictional Banks. In Saudi Arabia, Islamic banks such as Bank Al-Rajhi Banking and The National Commercial Bank have created funds for entrepreneurs. Furthermore, the Saudi Mechanical Development Fund characterizes SMEs in terms of annual agreements as companies whose annual agreements do not exceed SR 20 million for financing purposes.
He concluded that small and medium-sized firms with annual deals from SR 100 thousand to SR 5 million and representatives from 2 to 49. Medium-sized efforts are firms with annual deals from SR 5 million to 50 million and specialists from 50 to 200.
Methodology
Hypothesis
Research Philosophy
Research Process
One of the objectives of this dissertation is to investigate the awareness of the SME owner about the existence of Islamic financing alternative to SME financing. One of the objectives of this research is to examine the awareness of the Islamic mode of finance in Saudi Arabia. This survey shows that most Saudi Arabian-based SME owners are aware of the availability of Islamic finance.
One of the research questions the thesis to understand what percentage of SME owners prefer Islamic financing over conventional sources of financing. So, most SME owners are looking for Islamic bank financing for their projects. Only 25% of respondents agree that Islamic banks are less complicated in terms of securing finance.
Efficient service provided by Islamic banks is considered important asset by 60% of the respondents. The first aim of the study was to investigate SME owners about the existence of Islamic financing alternative to SME financing. The results of the questionnaire show that 44.75% of SME owners are aware of the existence of Islamic financing alternatives.
According to the results, 49% of the SME owners believe that it is easier to get Islamic financing than conventional.
Research Types and Seletion
Data Collection and Sampling
- Data Collection Instruments
- Sample size of the Study
- Quesrionnaire Construction
Different methods of data collection are used for both quantitative and qualitative research, so it is essential to choose the data collection method that best suits the purpose of the study. As a researcher, the main role is to choose or adapt a method that is as perfect as possible for the given study and then be able to discuss the odds and pairs of the chosen method as well as provide a rationale clear reason for choosing it. data collection method (Creswell, 2008). This research used questionnaires to collect primary data to achieve the objectives and test the hypothesis.
The questionnaires were used to collect data from SME owners in order to investigate both Islamic and conventional sources of financing. The reason for using questionnaires is that they are generally used to collect non-availability of the sample. In planning the survey, an attempt was made to ask as direct questions as could reasonably be expected, taking into account the background of the respondents.
A Google form was used to create the online survey, it is one of the features provided by Google Drive, it is an easy way to create online survey, helps in creating different types of questions from multiple choice to linear scale, and the result of the respondents' answer is automatically shown in graph and can be exported to Excel sheet. The survey link was shared to SME owners through email and what's app.
Demography of Sample
75% of the total population agreed that it is more complicated to get financing in Islamic banks than the conventional banks. One purpose of the research is to identify the selection criteria that SME owners use when choosing the Islamic form of financing. Quality products and services offered by Islamic financial institutions are considered an important factor by 67% of respondents.
Only 43% of respondents are concerned about Islamic banks' avoidance of Ghrar and Mysir. Only 45% of the population take the recommendation of their family members as a factor when deciding their selection criteria for Islamic financing. However, 40% of the respondents agreed that the Islamic finance has quality products and services so that they can get source of finance.
This hypothesis was intended to check how the interest or profit rate can impact on bank financial decisions of the SMEs owners. This hypothesis was intended to check how the ease of getting loans can have an impact on financial decisions of the SMEs owners. First research questions were to find out what percentage of the SME owners prefer Islamic financing over the conventional financing in Saudi Arabia.
As most SME owners prefer Islamic financing alternatives, it is highly recommended that Islamic financial institutions focus more on Islamic financial products, product development and marketing.
Hypothesis
Awareness of about the existance of Islamic financing options
Preference for Islamic financing alternatives
According to the above survey, 44% of the respondents believe that both banks are equal in terms of convenience, while 49% of the respondents believe that Islamic banks are more convenient than conventional banks. When comparing repayment flexibility, 15% of respondents agree that Islamic banks are flexible, while the majority of the population disagrees. In addition, the results presented in Table 4.6 show that almost 60% percent of SME owners would choose Islamic financing as it is mainly based on Islamic principles, 71% of respondents believe that profit sharing and risk sharing are important factors.
One of the research objectives is to understand the preferred Islamic financial contract or product by SME owners/investors when they are looking for Sharia complaint financing. In this section, hypothesis of the research is tested with the help of T-test and analysis is made based on the results. The third objective of the research was to compare the both Islamic and conventional bank in terms of obtaining the loans for SMEs.
Regarding the conditions for obtaining loans, 75% of SME owners believe that the conditions are more complex than those of conventional banks. About a quarter of SME owners finance their SME through their personal fund, which means more time to use their money first.
Comparttive analysis of Islamic and conventiona banks for loans
Selection criteria for choosing Islamic finance
Islamic contracts and products preferences
These findings showed that financing through Ijarah & Mudaraba are the most popular financing methods among the SME entrepreneurs. The respondents were asked whether the Islamic financial institutions should develop new products or innovate to be competitive like the conventional banks. According to table 4.9 of Cronbach's Alpha for Islamic product is 0.948 which is greater than 0.60, so the items are the construct reliable to measure the awareness.
Hypothesis
The purpose of this hypothesis was to determine the impact of awareness on SME owners on the choice of financing (Islamic or conventional financing selection). H0: Lack of awareness influences the SME owner's decision while choosing financing mode Islamic or conventional. H1: Lack of awareness has no influence on SME owner's decision while choosing financing mode of Islamic or conventional.
Based on the above t-test analysis, we can accept the null view which states that the lack of awareness has no impact on the entrepreneur's decision while choosing Islamic or conventional financing mode. It can be concluded that the lack of awareness does not have any impact on the decision of SME owners when choosing the mode of financing (Islamic or conventional financing) as the p value (0.000) < ∝ (0.05) is significant. H1: SME owners compare interest or profit rate while making bank financing decision H0: SME owners do not compare interest or profit rate while making bank financing decision.
Based on the above analysis, we can reject the alternative hypothesis and accept the null that the owners of the SMEs do not compare interest or profit rate while making a decision on financing from bank, since the p-value (0.001) < ∝ (0.05), which is significant. Based on the above analysis, it can be concluded that null hypothesis is accepted and alternative is rejected which get loan has no influence on financing as the p-value (0.000) < ∝ (0.05) which is significant.
- Introduction
- Conclusion
- Recommendation
- Suggestions for future research
Since Islamic banks are based on Sharia compliance, they should structure their products based on Islamic contracts, sometimes when developing Islamic products go through many contracts and make the customer more confused about the structure of Islamic defaults. 15% of SME owners using Islamic financing believe that Flexibility in repayment of capital and profit. The fourth objective had to do with the identification of the selection criteria used by SME owners when choosing the Islamic way of financing, and in relation to it, there were researches on what are the factors that SME owners have taken into account when choosing financing Islam.
The next research questions were to find the sources of financing by SMEs owners in Saudi Arabia. Based on the results, it can be concluded that, mostly the SMEs owners prefer to use their own personal funds obtained through either savings or income from work, second source of financing is from family and friends third and fourth source of financing from conventional banks, and. Furthermore, the results show that Ijarah and Murabaha are the most preferred methods of Islamic financing by the SMEs owners.
Since this research was done with a limited period of time, in-depth study could not be carried out, especially in Islamic financing for SMEs owners. Comparative analysis of Islamic and conventional banks in terms of obtaining the loans for SMEs. If you choose Islamic financing, assess the importance of the following criteria, which you would have considered or would consider in the future.
Method to run the SPSS to get the results shown above 1st : Define each of the variables from the questionnaire in the "variable view".
