Impact assessment of Islamic microfinance on small and medium-sized enterprises in Mogadishu, Somalia

Abstract

Small and medium-sized enterprises (SMEs) play an increasingly vital role in the economic advancement of nations. Nonetheless, these enterprises often face challenges in accessing formal external funding channels. The emergence of Islamic microfinance presents a potential solution to alleviate the financial constraints confronting SMEs. Given the primary mission of Islamic microfinance institutions (MFIs) to uplift the socio-economic status of the underprivileged, it becomes imperative to scrutinize their influence on SME growth. This study aims to ascertain the effects of Islamic microfinance on SMEs in Mogadishu, Somalia. Employing a systematic random sampling method, a carefully selected sample of 100 SMEs was determined. A structured survey framework was developed to collect data, and data analysis was conducted using the Statistical Packages for the Social Sciences (SPSS). The study reveals that micro-savings significantly contribute to SME augmentation, with comparatively limited impact from micro-insurance. While many SMEs benefit from Islamic microfinance, there is a shortfall in the attainment of required funding among beneficiaries. This research sheds light on concerns related to borrower defaults, pre-financing screening deficiencies, resource inadequacy, and the absence of governmental and donor support in Islamic microfinance institutions. The implications extend to future research opportunities, emphasizing the need for governmental and stakeholder efforts to streamline financing acquisition from MFIs by relaxing collateral requirements for SME borrowers.