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Introducing an Islamic equity-based microfinance models for MSMEs in the State of Libya

Zainab Belal Lawhaishy (IIUM Institute of Islamic Banking and Finance (IIiBF), International Islamic University Malaysia, Kuala Lumpur, Malaysia)
Anwar Hasan Abdullah Othman (IIUM Institute of Islamic Banking and Finance (IIiBF), International Islamic University Malaysia, Kuala Lumpur, Malaysia)

Qualitative Research in Financial Markets

ISSN: 1755-4179

Article publication date: 25 April 2022

Issue publication date: 17 January 2023

674

Abstract

Purpose

This study aims to propose and verify the suitability and applicability of Islamic equity-based microfinance models for financing micro, small and medium enterprises (MSMEs) in the State of Libya. The proposed models combine the unique features of social solidarity, cooperation “Ta’awan,” meeting religious requirements and providing financing more fairly and equitably.

Design/methodology/approach

A qualitative approach is applied in this study through semi-structured interviews with several Libyan experts, including Islamic bankers, Shariah scholars, MSMEs experts, Islamic microfinance experts and academicians. The data collected from 2019 to 2021 and thematic analysis by computer-based software NVivo is used to analyze the data.

Findings

The results indicate that the proposed Islamic equity-based microfinance models are suitable and applicable in Libya. This study also reveals that the proposed models have numerous potential benefits not only in meeting the financial needs of MSMEs but also in meeting the government objectives in economic divarication and socioeconomic development.

Research limitations/implications

First, the study proposes the applicability and suitability of Islamic equity-based models in financing MSMEs only, while large firms are excluded from the study. Second, the study only proposes and tests the applicability of Islamic equity-modes of financing contracts, namely, Musharakah and Mudarabah, while Islamic debt-based financing models are not included. Finally, as there is no practical evidence of using those models for financing MSMEs in Libya, this study lacks empirical evaluations of equity models’ real benefits on income, employment generation, living standards improvement and business growth and sustainability.

Practical implications

Given the importance of the MSMEs sector for the State of Libya’s economic growth, it is expected that the findings of this study can be of assistance in formulating guidelines and implementing Islamic equity-based microfinance programs. Besides, it can be a valuable source of information for policymakers for improving the functions of the current microfinance programs in the country. Additionally, as studies concerning Islamic alternative models for financing MSMEs are scarce, the current study can also be a reference point for researchers, academicians, practitioners and other stakeholders.

Social implications

Providing capital support for the underfunded economy segment, attracting small savings, increasing investments and developing entrepreneurial skills could lead to improved economic productivity and growth.

Originality/value

The present study proposes the structure of Islamic equity-based microfinance models for MSMEs in Libya and verifies the suitability of those proposed models among Libyan experts. To the best of the authors’ knowledge, no study has been conducted on uncovering and exploring the potentials of Islamic equity-based microfinance models for financing MSMEs in Libya.

Keywords

Citation

Lawhaishy, Z.B. and Othman, A.H.A. (2023), "Introducing an Islamic equity-based microfinance models for MSMEs in the State of Libya", Qualitative Research in Financial Markets, Vol. 15 No. 1, pp. 1-28. https://doi.org/10.1108/QRFM-01-2021-0017

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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