Islamic Financing's Impact on Alleviating Small and Medium Enterprises Financial Challenges in Lagos State, Nigeria: A Qualitative Assessment

Abstract

This study explores the impact of Islamic financing on addressing financial challenges faced by small and medium enterprises (SMEs) in Lagos, Nigeria. In response to the empirical evidence of underwhelming SME performance in developing countries due to insufficient funding, the research focuses on the role of Islamic banks in overcoming these challenges. Utilising structured interviews and NVIVO for qualitative data analysis, 18 SME owners who accessed Islamic bank financing and representatives from four Islamic banks participated in the study. Findings indicate that the primary hurdle for Nigerian SMEs is inadequate capital for initiation or expansion, and Islamic banks can effectively address this gap during the early and expansion stages. Respondents express high satisfaction with the promptness and availability of credit facilities from Islamic banks, highlighting the streamlined process compared to conventional banks. The study identifies the pivotal roles of Islamic banks in promoting SME growth, acting as financial intermediaries, offering alternative finance sources, providing advisory services, and ensuring proper fund utilisation. However, dissatisfaction with fund adequacy from Islamic banks is noted. Recommendations include governmental collaboration with Islamic banks to enhance SME support and the suggestion for Islamic banks to augment their capital, credit portfolio, and loan facilities for SMEs.