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The Impact of Islamic Banking Cost of Financing and Islamic Banking Availability on the Empowerment of SMEs in Bangladesh

Author

Listed:
  • Kamal Mustafa Said Ibrahim

    (Al-Madinah International University, Jalan 2/125e, Taman Desa Petaling, 57100 Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur)

  • Besar Bin Ngah

    (Faculty of Finance and Administrative Sciences, Al-Madinah International University, Kuala Lumpur, Malaysia)

Abstract

Access to affordable and adequate financing remains a persistent challenge to the development of small and medium-sized enterprises (SMEs) in Bangladesh. Conventional banking institutions often perceive SMEs as high-risk clients due to limited assets, informal business structures, and insufficient collateral. This study investigates the impact of two key dimensions of Islamic banking—cost of financing and financing availability—on the empowerment of SMEs in Bangladesh. A quantitative research design was employed, utilizing survey data collected from 300 SME owners and managers across the country. The data were analyzed using SPSS and Partial Least Squares Structural Equation Modeling (PLS-SEM) to test the proposed hypotheses. The results reveal a significant positive relationship between the availability of Islamic bank financing and SME empowerment (β = 0.191, t = 4.328). Furthermore, the cost of Islamic financing exhibited a strong and highly significant influence on SME empowerment (β = 0.682, t = 18.515). These findings underscore the pivotal role of Islamic banking—particularly its cost structure—in facilitating SME empowerment in Bangladesh. The provision of affordable, Shariah-compliant financial services is shown to enhance SME growth, sustainability, and integration into the formal economy. The study offers valuable implications for policymakers, financial institutions, and development agencies seeking to strengthen the SME sector through context-specific Islamic finance mechanisms.

Suggested Citation

  • Kamal Mustafa Said Ibrahim & Besar Bin Ngah, 2025. "The Impact of Islamic Banking Cost of Financing and Islamic Banking Availability on the Empowerment of SMEs in Bangladesh," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(8), pages 3175-3184, August.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-8:p:3175-3184
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    References listed on IDEAS

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    2. Joshua Abor & Nicholas Biekpe, 2009. "How do we explain the capital structure of SMEs in sub‐Saharan Africa?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 36(1), pages 83-97, January.
    3. Joshua Abor & Nicholas Biekpe, 2009. "How do we explain the capital structure of SMEs in sub‐Saharan Africa?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 36(1), pages 83-97, January.
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