RISK AND SELECTION CHALLENGES IN MUSHARAKAHH FINANCE: THE MODERATING ROLE OF AWARENESS

Abstract

Present study examines the factors influencing the growth of Musharakah finance within the context of Islamic banking, emphasizing the Small and Medium-sized Enterprise (SME) market. The goal of the study is to determine the overall effects of high levels of risk and
selection on the development of Musharakah finance. Additionally, the study introduces the moderating role of awareness in shaping these relationships. The study uses a quantitative methodology to gather information from Islamic bankers working in fully-fledged Islamic banks and conventional banks with Islamic banking branches, drawing on the Theory of Constraints as its theoretical foundation. These specialists are given a questionnaire to fill out, asking for their opinions on the various elements and how they have affected the development of Musharakah finance. Additionally, the study clarifies the function of awareness as a moderating variable by evaluating how entrepreneurs' and the banking industry's levels of awareness may affect the connections between the determined factors and the expansion of Musharakah finance. The findings of the study show that the aforementioned factors are significantly affecting the growth of Musharakah Finance and these factors must be addressed by the Islamic Banks, State Bank Of Pakistan and The Government to support SMEs to avail of Musharkah Finance. The study highlights the important role of awareness in promoting Musharakah financing and suggests that increased awareness will lead to an increase in greater participation by SMEs. It also supports the diversification of Islamic financing by focusing on small and medium enterprises, promoting financial inclusion and economic growth. The study provides recommendations for policymakers and financial institutions to develop support mechanisms and financial products to improve SMEs’ access to Musharakah financing