The Role of Islamic Banking practice on SMES Development in Mogadishu

Abstract

The purpose of this research is to investigate the Role of Islamic Banking Practice on SMEs Development in Mogadishu. The study was intended specifically to determine and describe The Islamic banking principles, objectives, contracts in promoting SMEs in Mogadishu, and financing problems and challenges facing SMEs in Mogadishu. Due to the scarce literature, which links Islamic finance and finance in general for SMEs, The main motive of this paper is to find the role of Islamic banking practice on SMEs development in Mogadishu. Since Somali‘s banks are increasing at alarming rate, there is a great need for SMEs to be financed to contribute sustainable growth for the country‘s economic conditions. Quantitative study was carried out which involved 45 questioners of closed end questions of target population in gathering primary data with different groups of people such as the Bank Officials, SMEs Entrepreneurs. The questionnaire are based the role of Islamic banking practice on SMEs development in Mogadishu. The research findings revealed that Murabahah is one of the most popular contracts of sale used for purchasing commodities and other products on credit and Musharakah is most suited for financing private or public companies and financing project that contributes for developing and promoting Small Medium Enterprises in Mogadishu. The findings suggested that Islamic banks should treat SMEs differently compared to big corporations and according to their needs.