Some aspects of small business financing through profit and loss sharing model in Islamic economic doctrine

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2019-04Author
Panchenko, Yevhen
Панченко, Євген Григорович
Панченко, Евгений Григорьевич
Mozghovyi, Oleh
Мозговий, Олег Миколайович
Мозговой, Олег Николаевич
Yurkevich, Oksana
Юркевич, Оксана Миколаївна
Юркевич, Оксана Николаевна
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There have been at least two distinctive approaches to try to overcome the SME finance gap. The first has been to broaden the collateral
based approach by encouraging bank lenders to finance SMEs with insufficient collateral. This might be done through an external party
providing the collateral or guarantees required. The second approach has been to broaden the viability based approach. Since the viability
based approach is concerned with the business itself, the aim has been to provide better general business development assistance to reduce
risk and increase returns. These two approaches in overcoming the SME finance gap are implemented and consistent with Profit and Loss
Sharing Model, also called PLS or “participatory” banking. Profit and Loss Sharing is a method of finance used by Islamic financial or
Shariah-complaint institutions to comply with the religious prohibition on interest on loans that many Muslims subscribe to.