The Influence of Islamic Financing on SMEs Performance in Nigeria

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue IX, September 2020 | ISSN 2454–6186

The Influence of Islamic Financing on SMEs Performance in Nigeria  

 Sa’adatu B. Adam
Islamic Business School, Universiti Utara Malaysia, Kedah, Malaysia.
Corresponding author* 

Abstract: With emerging literature on Islamic finance and Islamic modes of financing, a number of research studies were conducted to analyze and look at the role of Islamic modes of financing for the growth of several sectors of economy. But few studies have been attempted to consider the influence of Islamic financing on SMEs performance in Nigeria. SMEs are the important determinants of economic growth; they contribute and enhance the general productivity and employment opportunities. Therefore, the purpose of this study is to examine the influence of Islamic financing on SMEs performance in Nigeria. This is cross sectional research using 354 owner/managers of SMEs in Kano, Kaduna and Sokoto State in north-western Nigeria. Regression analysis was used for the data analysis. It has found that Islamic financing (IF) has positive influence on SMEs’ performance. Theoretically the study provides additional understanding on the importance of Islamic financing in predicting SMEs’ performance. Consequently, the present study is useful to the government and its agencies, financial practitioners, as well as business and academic researchers, in furthering understanding of how the tangible resources in this model influence SMEs’ performance in Nigeria. This study recommends for the future empirical studies on this relationship should be replicated to cover the entire six geo-political regions of Nigeria if the findings are to be generalised to the whole country.

Keywords: Islamic financing; Islamic modes of financing; SMEs performance

I. INTRODUCTION

Small and medium enterprises (SMEs) have been extensively recognised as a catalyst supporting economic development. They assume a crucial role in the advancement of any country’s economy (Babajide, 2011). Therefore, the SME sector serves as an instrument for economic recovery and is among the important areas of economic proliferation in both developed and developing countries (Herath & Mahmood, 2013, 2014; Oduyoye, Adebola, & Binuyo, 2013). SMEs constitute the greater part of business enterprises, are responsible for most job creation and are considered to be the major driving force and contributor to economic growth in most economies (Akingunola, 2011). Thus, the impact of SMEs on the growth and development of any country’s economy cannot be over emphasised (Aminu & Shariff, 2014).

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