Small businesses rely upon loans as a form of capital for the smooth running, growth and expansion of their businesses. However, Muslim owners are reluctant to take up traditional loans because of religious and social norms, which are seen as a hindrance for the running of these small-scale businesses.
This case infers how incorporating a new equity-based financing contract (referred to as Musharakah-based financing) will increase the flexibility of providing capital as a form of investment for these businesses. A modification in the investment behaviour is productive as it stimulates transformational entrepreneurship and leads to not only the growth of microenterprises but also in the overall employment levels. Various research questions are addressed in the case to see the effect of Musharakah-based financing on the Islamic Perspectives like Decision-Making, Organizational-Development and Product-Structure. A Randomized Control Trial methodology is used in this study. The sample is taken from the microenterprises (that have passed screening from the partner institution Akhuwat), who are purchasing the asset to expand their business. The concept of ‘Diminishing Musharakah’ is used to structure this contract in order to meet the Islamic Financial foundation. The purpose of this case is to alter the traditional loaning procedures for the poor people of Pakistan, so that they can see their businesses function smoothly.”