Islamic Finance an alternative mode for short term financing – working capital management
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 24 March 2022
Issue publication date: 17 March 2023
Abstract
Purpose
This paper aims to review and compare the conventional and Islamic perspectives of working capital management (WCM) to devise the best option of financing for managing working capital (WC) in South Asia. The paper also aims to help the business world for running its operations more smoothly by devising an alternative source of financing especially during crises such as the global financial crisis 2008 and the COVID-19 pandemic.
Design/methodology/approach
The divergence approach is used for a critical analysis of existing literature to derive the best possible alternative to the conventional system of financing.
Findings
This paper identifies that Islamic financing is an appropriate mode of financing as compared to conventional financing for meeting WC requirements in South Asia. Furthermore, under Islamic financing, the best available alternative way for managing WC needs is the Mudarabah Islamic mode of financing.
Research limitations/implications
This is a theoretical paper and thus does not include empirical results.
Practical implications
This paper provides conventional and Islamic perspectives of WCM. The Islamic banks in South Asia may devise policies to encourage and convenience firms for using Mudarabah mode for meeting their WC needs instead of conventional sources. This paper also identifies that small and medium enterprises may be targeted by Islamic banks in Asian markets for providing funds for their smooth operations especially during a financial crisis when conventional banks refuse to lend. This will help managers to run businesses more efficiently and effectively especially during any kind of financial crisis in the future.
Originality/value
To the best of the author’s knowledge, this is the first study that studies the relationship between WCM and Islamic financing in comparison to conventional financing. Although prior studies identify an alternative to conventional financing as Islamic financing, no one studied while considering the WC as the main variable. This paper informs practitioners and researchers about a “state of the art” Islamic perspective of WCM.
Keywords
Acknowledgements
The author would like to thank Editor and anonymous reviewers for their constructive feedback and comments. Furthermore, the author acknowledges the research support of Dr Tracy-Anne De Silva and Professor Christopher Gan, Lincoln University New Zealand.
Citation
Kayani, U.N. (2023), "Islamic Finance an alternative mode for short term financing – working capital management", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 16 No. 2, pp. 310-322. https://doi.org/10.1108/IMEFM-07-2021-0290
Publisher
:Emerald Publishing Limited
Copyright © 2022, Emerald Publishing Limited