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Bank Financing for Small and Medium Enterprises in Nigeria: Mudharabah Vs Usury

Author

Listed:
  • Muhammad Jamiu Nuhu Adekola

    (Isa Kaita College of Education)

  • Olusegun Kazeem Lekan

    (Federal University Dutsinma)

  • Sonny Emmanuel Braide

    (Federal University Dutsinma)

Abstract

This paper presents a comparative analysis of the more viable SMEs financing in Nigeria. The study incorporates NPV technique to determine whether conventional banks usury is more viable than Islamic bank mudharabah financing for SMEs growth and innovation. Results based on the difference between the present value of entire loans receivable and the discounted loans payable from 2000 – 2017 sampled periods showed that mudharabah has a positive and higher NPV thus it is far better and more worthwhile for enterprises to grow and innovate than the usury source of finance. Therefore, this study suggests that SMEs should utilize Islamic bank mudharabah financing in order to raise profitable funds for investment, expand their businesses and acquire the latest technology that ensures their competitiveness and growth and that of the nation as a whole. Hence, this study concludes that mudharabah is a just source of finance that promotes equity, income redistribution and enhances growth and innovation of SMEs in Nigeria.

Suggested Citation

  • Muhammad Jamiu Nuhu Adekola & Olusegun Kazeem Lekan & Sonny Emmanuel Braide, 2018. "Bank Financing for Small and Medium Enterprises in Nigeria: Mudharabah Vs Usury," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 14(3), pages 23-32, JUNE.
    • Handle: RePEc:dug:actaec:y:2018:i:3:p:23-32
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