Islam and its core principles put emphasis on social justice, inclusiveness and sharing of resources among people in a more redistributive manner (Mohieldin et al., 2011). Islamic finance is based on philosophical underpinnings that aim at promoting socio-economic development of all individuals thereby promoting financial inclusion through extending services to those considered bankable and unbankable within the society such as SMMEs (Asutay et al., 2012; Bank Negara Malaysia, 2016).According to Marzban (2015), Islamic finance promotes entrepreneurship through engaging in asset-backed financing and risk-sharing.
Whereas “asset-based financing ensures that the transaction is financing real economic activity based on close linkage to the financed assets, thereby ensuring less “financialization” in the economy, equity-based financing encourages profit and loss sharing between financiers and entrepreneurs, which results into greater alignment of interests and increased risk sharing” (Marzban, 2015, p. viii). This additionally encourages business enterprise, particularly of seed and beginning capital for new companies, which depends absolutely on value financing for their businesses.
Islamic finance provides innovative and inclusive products that not only increase financial inclusion of SMEs and other unbankable individuals, but also attracts capital from notable Islamic suppliers of capital and other necessary resources thereby bridging the financial gap left by conventional institutions. This has been successful because of its ethical virtues of innovative seed, early-stage, and growth-stage start-ups which function as a catalyst for innovation-driven economies and growth (Marzban, 2015).