Strategies in Islamic Finance Affecting Malaysian Bumiputera SME Performance: A Conceptual Framework

Abstract

Malaysia is emphasizing on developing SMEs as they are, among others, the main contributors to the country’s GDP. Even though the government has invested in various programs and initiatives to enhance Bumiputera SMEs’ business performance, it is still bearing poorly as opposed to that of other ethnic groups. In fulfilling the business requirements for capital financing, most of the SMEs in Malaysia are getting their financing from banking institutions, either in the form of Islamic or conventional financing. This paper intends to fill the gap between factors in Islamic finance and Bumiputera SME business performance by analysing and understanding comprehensive literatures on the subject in question. The aim of this study is to investigate the relationship between the strategies (networking, branding, financial assistance, and flexibility) in Islamic banks and Bumiputera SMEs’ performance. For the research design in respect to conceptual papers, the present study adopts the type of Theory Synthesis. It seeks to achieve conceptual integration across Ibn Khaldun’s Theory of Development, Resource-based View Theory and Stakeholder Theory. Hence, this paper provides an expanded perspective on Bumiputera SMEs’ performance by bringing previously unconnected or incompatible elements together in a novel way. The literature reveals that there are positive relationships among strategies and Bumiputera SMEs’ business performance. However, only a handful of studies are analysing these correlations. If empirically supported, the proposed framework may provide an effective alternative in assisting Bumiputera SMEs to delve into information pertaining to Islamic financing for a better decision making on their capital financing or bank-related business transaction activities. In essence, this study reveals that there is a need for further research to discover new insights on strategies and factors in Islamic finance and enhance business performance of Bumiputera SMEs in Malaysia.