Assessing the Islamic lending practices in General Santos City, Philippines : the case of Katiyakap, Inc. /
Nor-Aiza R. Unas ; Jon Marx P Sarmiento, adviser.
- 103 leaves
Microfinance offers financial services and considered as a poverty alleviation tool. It provides small loans to people with insufficient income that hinders them from making self-employment projects. Informal sector in the Philippines is comprised of micro enterprises in a form of small vendors usually situated in public markets. These microentrepreneurs rely heavily on financing which usually comes from informal financiers. Muslim micro entrepreneurs are predominant in public markets. Due to religious principles, these micro entrepreneurs require a different type of financing, especially in lending. The elimination or ribs or interest is the salient feature of Islamic lending. Islamic lending can provide assistance to those Muslim micro entrepreneurs who are rejecting the conventional type. With this demand, Katiyakap Inc., a non-government organization, offers 3 modes of Islamic financing; Musharaka or profit and loss sharing, Ijarah or leasing, and Murabaha or cost plus margin sale. Thus, this study was conducted to assess the Islamic lending practices in General Santos City. A total of 120 Muslim micro entrepreneurs were interviewed. Cronbach's Alpha was used as a reliability test. Tobit and multinomial logistic regression were both employed. The results show that the practice of Islamic lending is prevalent in General Santos City public markets. Even though it is an informal transaction, 55% of the total sample preferred to borrow from their relatives and still adhering to the concept of Islamic lending. Among the modes of financing, the Musharaka and Murabaha were the most preferred. Those microentreprenuers who have higher number of years in business prefer Musharaka since this scheme can lead to business expansion while those who are still in their early years in business prefer the latter which can provide them the needed assets for business operation. For future studies, Muslim entrepreneurs operating in both small and large scale operation should be considered.