Influence of Awareness on SME’s Intention towards adoption of Islamic Finance in Pakistan

Abstract

A large number of SMEs in North Africa, Middle East and South Asia prefer Islamic financial products overtheir conventional counterparts. Similarly, in Pakistan SME owner-managers prefer Islamic finance as 20-25 percent of SMEs are not willing to takeconventional finance. Despite higher demand, however, these firms are unable to access Islamic finance from financial institutions. There are several factors behind this dilemma on both supply and demand side. The present study discusses demand side issues pertaining to lack of adoption of Islamic finance by SMEs in Pakistan. Among various demand side factors, this paper has focusedon the issue oflack of financial knowledge or awareness of Islamic financial products. In Pakistan, due to financial illiteracy of SME owner-managers, they seldom are able to identify suitableavailable financing options for their business financial needs. Thus, this study intended to determine the importance of awareness factor in influencing intention of SMEs to adopt Islamic finance.Aconceptual framework has been constructed based on Theory of Planned Behaviour (TPB) and researchpropositions are developed in order to elaborate role of awareness in influencingSME managers?intention towards Islamic finance adoption.A preliminary analysis has been conducted through pilot study to check the internal consistency and reliability of instrument and found valid for further research. These both outcomes of the study are expected to lay foundation for more structured research on the issue of demand side factors of adoption of Islamic financial products.