The Importance Of Islamic Finance Principles In Modulating SME Growth Factors: A Case Study Of The Sultanate Of Oman

Despite acknowledging the importance of SMEs in strengthening economic growth, the current performance and contribution of this sector in Oman is unsatisfactory. This view can be attributed principally to the deficiencies associated with this sector, e.g. the accessibility of financing. This issue is identified in the literature as one of the most significant growth barriers in many developed and developing economies. Often, it results from the requirements and terms to obtain funding considering inadequate collateral, managerial skills, etc. Thus, achieving the desired improvement of SME development will not happen unless the financing process is facilitated, mainly removing obstacles. In this regard, this thesis argues that Islamic finance will overcome these obstacles by incorporating Islamic principles into the financing process. More specifically, this inquiry investigates the impact of Islamic finance principles on SME growth factors to stimulate growth. This project employs a mixed-methods survey of 410 entrepreneurs, semi-structured interviews with 44 of these entrepreneurs and those concerned about this sector development in Oman, using ordered and generalised logistic regressions and thematic analysis. The analysis of data collected through the questionnaire indicates that Islamic finance principles have a significant positive impact on SME growth factors, leading to expanding SME capital, sales and profits, and, to a lesser effect, on employment. This finding can be attributed mainly to the spirit of backing and solidarity in the Islamic finance system, which is identified by this survey as the most influential factors in removing growth barriers. This significance was obtained by operationalising the assurance of ownership, sharing, control, ethical practices, solidarity, and enhancement. This approach creates an Islamic finance framework, including collateralisation, risk management, and sustainability, that increase the probability of addressing challenges. The empirical outputs highlight the importance of Islamic finance in stimulating SME growth—besides, the generation of new insights into the literature by making SME growth factors more effective.