While the above resources show a robust landscape for SMEs
financing, Shariah-compliant SMEs that are the main drivers for the halal
industry face financing challenges as they are excluded from the most common
financing opportunities which are polluted with elements of interest prohibited
in Islamic commercial law. In fact, an additional factor that exacerbates this
situation is the fact that Islamic banks operating in most jurisdictions around
the world are not lending institutions compared to their conventional
counterparts. Hence, they are not primarily established to provide financing
facilities through lending to customers but they are involved in structured
Shariah-compliant transactions that facilitate financial intermediation. Hence,
Halal SMEs are left with scanty funds raised from family and friends, as they
are not considered as a priority in the business of modern Islamic banks.
Challenges of Halal SME Firms
From the perspective of Halal SMEs surveyed, it is clear
that financing is a major challenge still facing by SMEs in improving their
productivity and competitiveness in local and regional halal markets.
Procedures for obtaining financing from banks are complicated and it is difficult
to meet the requirements of procedures set by banks. This contributes to other
sources of financing or reliance on scanty sources that will affect its
performance, productivity and expansion plans. In addition, irregular business
flows and decrease in sales are also considered as the challenges faced by some
of the Halal SMEs. This might be due to lack of diversity and product
differentiation. There are various Halal products and services that can be
offered by any of the SME firms instead of duplicating or replicating what
other established firms offered.
Apart from competition from other Halal firms, it is
difficult for Islamic SME to compete with non-Muslim SME firms operating in the
country, mostly owned by Chinese who are more expert in marketing and
productivity. Despite the halal product production, it appears that Chinese
firms dominate the market and Muslim-owned SME firms cannot meet the level of
sophistication of marketing strategies adopted by their counterparts. This
scenario significantly affected their productivity and profits, and has
negatively affected their ability to redeem their loans.
Halal SMEs are facing the challenge of expanding their business. They unable to
extend their tentacles to new business boundaries or even compete with other
Halal entities within the ASEAN region due to lack of funds. There are some SME
firms also facing difficulties in buying raw materials and packaging. This is
where the information and communication technology (ICT) may play an important
role in transforming the Halal industry. Introducing automated processes will
enhance SME businesses and provide them with competitive edge in the
increasingly competitive globalize Halal market.