Perception of SME’s Management Regarding Islamic Banking: A Users vs. Non-users Comparative Analysis

INTRODUCTION Rabia Umar1 Faid Gul2 1Bahria University, Islamabad, 2National University of Modern Languages, Islamabad, E-mail: fgul@numl.edu.pk, faidgul@gmail.com SMEs play a vital role in the development of any developing economy like Pakistan as they offer employment generation source and thus help in poverty alleviation by making improvement in people living standards. SMEs also offer job opportunities to minorities like women that are helpful in offering support to their family’s financial burden. SMEs sector is contributing 40% to Pakistan GDP and they are a major source of job creation as more than 82% of enterprises of Pakistan are falling under the category of SMEs (Economic Survey of Pakistan, 2016-2017). SMEs sector was considered to be one of the fastest growing export sub-sectors of Pakistan before the energy as well as the financial crisis of 2007-2008 but the crisis leads to decline in the growth of this sector. SMEs play an important role in the economy of Pakistan but still, it is facing many constraints for its growth as well as the establishment (Hossain, 1998). Some of the main barriers being faced by SMEs include lack of finance (Beck, Demirgüç-Kunt & Maksimovic, 2005) policy issues (Hossain, 1998), lack of support by Government (Kureshi, Qureshi, & Sajid, 2010) and interest rate ceiling (Mohsin, 1995). SMEs are facing the financial obstacles due to banks reluctance in offering credit to them for their growth and development due to lack of financial records being maintained by SMEs, lack of collateral and low credit scoring. According to State bank of Pakistan (2016), 67% of the finance being extended to SMEs was used to fulfill their working capital requirement in the