Description

In 2006, Malaysian government has implemented a sustainable and comprehensive microfinance
institutional framework. Since then, many of the financial institution have launched microfinance
products. The Islamic finance as such can flourish in the Small Medium Enterprises(SMEs) and
microfinance sector since financing in Islam involves the real economy. The Islamic financing which
is based on Shari’ah differs in its spirit and motivation as compared to the conventional one. This
paper, attempts to explore the Islamic Guarantee Schemes services as provided by the Credit
Guarantee Corporation(CGC). What are the factors that could lead the SMEs to go for Islamic
Guarantee Schemes and what are their perceptions and knowledge of Islamic financing?. The data
set utilized in this study has been obtained via self administered questionnaire, based on sample of
125 CGC’s clients. Results of the survey postulated that many of the entrepreneurs were not aware
on the existence of Islamic Guarantee Schemes, and their knowledge pertaining to the Shari’ah
principles of Islamic micro financing is rather shallow. The results have important implications to
the policy maker in strengthening the use of Islamic micro financing among SMEs. The CGC also
must work in concerted effort with participating financial institutions to market these schemes to
other entrepreneurs, who may be looking for alternative modes of financing, which are Shari’ah
compliant.