Financial Inclusion of Small & Medium Enterprises: An Analysis of Ijarah Based Financing

  • Majid Jamal Khan Department of Management Sciences, COMSATS University Islamabad, Wah Campus, Pakistan
  • Jamil Anwar Assistant Professor, Department of Management Sciences, COMSATS University Islamabad, Abbottabad Campus
  • Abdus Sattar Abbasi COMSATS University Islamabad, Lahore Campus
Keywords: SME Financing, Financial inclusion, Islamic Finance, Ijarah Financing


We critically analyse a particular case of Islamic financing “Ijarah”, availed by a small business that was previously unbanked and eventually attained exponential growth. Ijarah is an Islamic financing contract in which the use of an asset is rented out for a particular period against a pre-defined rent and may or may not eventually end into the transfer of ownership. The study revolves around a firm relationship between the bank and the customer who was previously unbanked but embarked on a lasting banking relationship due to the particular nature of Ijarah facility. Using qualitative data collected through interviews, observations and analysis of relevant documentations, we derive a number of important lessons for practitioners, academicians, students and the SMEs. First, the case represents an example of how customer engagement is at the core of successful business. Second, this case represents how a successfully implemented Ijarah financing helped the customer achieve exponential growth in assets size and business volume hence reflecting the real economic impact of Islamic Finance. Third, the study reveals a particular distinctive feature of Islamic financing i.e. being a successful driver of financial inclusion. The paper concludes with recommendations for the Islamic banks, shariah boards and the SMEs.