Abstract: This study examines financial challenges of SMEs: evidence from State house Slums, Hargeisa, and Maroodi jeex region. Specifically the study provides empirical evidence on: socioeconomic characteristics of the respondents; sources and difficult of SMEs accessing financing; factors militating against SMEs performance. The researcher distributed 324 questionnaires to the respondents that make up the sample size.
Somaliland’s biggest income and employment generator is SMEs sector. Most of them deal in clothes, food, agricultural products, consumables, gold, beverages, fruits, transport and small scale manufacturing and processing. One of the biggest problems affecting the development of SMEs in Somaliland’s is inadequate access to finance.
The two- Islamic banks banking system in Somaliland has been reducing exposure to SMEs over the past few years, primarily due to macroeconomic factors and the SMEs’ poor business conditions, which make lending to them a risky proposition.
Access to finance is a major issue for SMEs in Somaliland; Most of SMEs are underserved if not un-served. Religious belief is a key reason hindering SMEs from opting for conventional banking financing. This type of sentiment has been growing stronger, especially over the past years. Although these SMEs are creditworthy, they are excluded from accessing funding from banks as Shariah-compliant products are either not available or not properly understood by these SMEs or involve lengthy processes, making the execution of Islamic transactions cumbersome. Somaliland’s SME sector has a positive attitude toward Islamic than Conventional banking as people are becoming more sensitized to its benefits. However, numerous factors deter SMEs from approaching formal institutions for finance. A hybrid economic system is likely to appropriately work for SMEs in developing countries.
Keywords: Islamic and conventional banking systems, Small and Medium Enterprises (SMEs), Challenges, State House Slums, Accessing business loans, Hargeisa and Somaliland.
Title: Small and Medium Enterprises (SMEs) Challenges in Accessing business loans from Islamic banks: A Comparative Case Study of SMEs in State House Slums, Hargeisa Somaliland
Author: Phillemon Landy Tubei, Tracy Wekaya Tubei
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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