Business Firm Attitudes toward Islamic Methods of Finance

Abstract

The analysis in this chapter establishes that while commercial Islamic finance is not yet formally practiced in Libya, most businesses have at least some knowledge about Islamic methods of finance. We can partly attribute this awareness to both knowledge of developments in other Muslim countries and to the fact that many commercial products and services offered by Islamic financial institutions bear close relation to informal financing and business arrangements already practiced among Muslims. These include Musharakah (full partnerships) and Quard Hassan (interest-free loans), with the latter practiced personally by about one-fifth of all business respondents. We find many firms are predisposed to Islamic finance, but those that do generally have less business experience, are smaller in terms of assets and the number of employees, have lower levels of outstanding debt and fewer owners. In fact, only 5.1% of potential user firms have assets in excess of LYD500,000 compared to 73.0% of firms that are not potential users, and no potential user has liabilities exceeding LYD200,000. This would immediately suggest that while Islamic finance could potentially play a major role in business financing in Libya, it would primarily be for small and medium-sized enterprises.