Conclusion

After reviewing different literatures regarding to Islamic financing system and conventional financing system, its impact on SMEs, and data analysis I concluded that, Islamic bank using different instrument of financing to SMEs the most common and frequently used instrument is Mudaraba, Musharaka, Murabaha and Ijara (Islamic leasing).

Conventional Banks has been used to finance SMEs by Long term, Medium term, and short term financing as well as leasing. Islamic bank using P&L shearing principle and conventional Banks are using interest as the cost of financing. 

The profit and loss shearing ratio varies with the type of financial instruments, i.e. in Musharaka the Bank and client (entrepreneur) acting like a partner in business, this is like active partnership.  And Mudaraba is like passive partnership. As this principle has a unique characteristic that loss in business also shared at agreed rate if loss occurs in business the entrepreneurs do not to pay any additional charge to bank.

Conventional Banks charging interest at different rate forms the finance, this rate is fixed whether loss occur or business gain profit, this amount with interest should must pay to the bank.

As the knowledge of Islamic bank is rare it is new in Pakistan only % knows about Islamic banking many of them are high educated in Pakistan the lager of knowledge of Islamic financing is the main factor which effects Islamic financing in the region. The Mudaraba is the most frequently used product of Islamic financing while the most frequently used instrument of conventional financing is the long-term loan while short term loan is used less comparing to long term in financing SMEs. Another product of Islamic financing Ijara is used frequently while leasing used less comparing to Ijara.

The risk shearing characteristic is the most considerable factor among Islamic and conventional financing is also effects the income of the fiancée. In Islamic system of financing the ratio of decrease in monthly income is less, compare to conventional system with the difference of  10% but as the increase in monthly income is concerned the conventional financing considered batter compared to Islamic financing, it reflects the risk influence of financing. If the risk of loss is high in business then conventional makes it double but if not then it is profitable for the business.

The SMEs which using Islamic system of financing their monthly income remains idle as compare to SMEs which using conventional system of financing. In conventional it cases increase or decrease in high margin.

The margin of Increase in monthly income of SMEs which using Islamic financing is less compare to SMEs using conventional system of financing, this ratio is about 6%, but in lower margin the ratio is comparable between Islamic and conventional system. This percentage is between 1 to 10%, it reflects the above discussed risk shearing aspect of financing.

These changes in monthly income probably cases of expansion or contraction in the business volume. The ratio of expansion SMEs using conventional financing is more as compare to Islamic financing of about the 15% percent of difference. But after utilizing financial instrument the business volume occurs no change of SMEs used Islamic financing compare to the SMEs using conventional.

But is it should be noted that the margin of expansion of Islamic financial instrument users is higher then conventional financial instrument users. In middle margin the two systems competing each other. In this point the Islamic can be considered batter because the margin of expansion in volume of business reflects in favor of Islamic system of financing.

Besides all these factors, which influence the business or income, the 90% of user are satisfied form Islamic system of financing compare to only 5% of conventional system. The basic reason found is the demand of the system according to Sharia law and Prohibition of Interest in Islam. Only 10% are not satisfied from conventional and Islamic system because of high rate. 85% of users of conventional system are dissatisfied because it is against of Islamic law.

With out considering the sharia the Islamic although considered batter for business financing as compare to conventional users, but 5% users consider the conventional the best one for financing business. Although large number consider the Islamic the batter as compare to conventional.

The study indicates that the Islamic mode of financing is batter then with respect to risk shearing when the business suffer loss the businessman need not to pay any additional amount to the bank. But study indicates that the cost is high then the conventional system. Conventional financing has batter impact on SMEs as income and business expunction or production is concerned, in other side if the business suffer loss the principle amount with interest should must to pay it is fixed in nature.

Most of the people preferred Islamic mode of financing, because of religion. Most of the respondents are willing to use Islamic financial instrument in future. The study also concluded that some percent increase in interest rate bring about to change decision towards Islamic financing system as comparing to Islamic clients who has less probability to change the decision towards conventional financing system.

At the end we concluded that The Islamic mode of financing and conventional mode of financing have not equal impact on SMEs growth. The study although shows in favor of conventional mode of financing, but is difficult to say that Conventional mode of financing has batter impact on SMEs the fluctuation of respondent view suggests that some were the Islamic mode of financing is batter as the element of risk is concerned.

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