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Article
Publication date: 29 September 2022

Sumaira Siddiky, Randi Swandaru and Aishath Muneeza

Micro-enterprises, like any other business entity, face financing challenges. However, micro-enterprises often cannot access financial institutions as they cannot fulfill the…

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Abstract

Purpose

Micro-enterprises, like any other business entity, face financing challenges. However, micro-enterprises often cannot access financial institutions as they cannot fulfill the conditions to obtain financing facilities from a formal financial institution. As such, they have to rely on family or friends for financing needs. The most critical challenge faced in this regard to Muslim micro-enterprises is finding out a way in which family and friends could give a financial helping hand without the involvement of riba (interest). At the same time, the person giving the financing can enjoy a profit. This paper aims to propose the Tawarruq Fardi Financing (TFF) model that Islamic micro-enterprises could use to fulfill their financial needs. It becomes a solution when obtaining financing from friends and family or any other third party who could be a private investor who does not want to engage in an equity relationship.

Design/methodology/approach

This study adopts a qualitative research methodology, combining descriptive and content analysis using the inductive reasoning approach.

Findings

The paper's outcome shows that the proposed TFF could assist Islamic micro-enterprises in obtaining Shariah-compliant financing without engaging in an equity partnership. It allows them to fulfill their financing needs bearing in mind the interest of both parties involved in the transaction.

Originality/value

This research will assist Islamic micro-enterprises to find out a Shariah-compliant financing facility from family, friends and any other private investors without entering into an equity relationship. The proposed model would be a Shariah-compliant alternative to interest-free loans and engaging in an equity relationship for the sake of getting benefits for both parties involved in the transaction.

Details

PSU Research Review, vol. 8 no. 2
Type: Research Article
ISSN: 2399-1747

Keywords

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