Can micro-enterprises use Tawarruq Fardi Financing (TFF) for fund raising?

Sumaira Siddiky, Randi Swandaru and Aishath Muneeza

PSU Research Review, 2022, vol. 8, issue 2, 540-552

Abstract: Purpose - Micro-enterprises, like any other business entity, face financing challenges. However, micro-enterprises often cannot access financial institutions as they cannot fulfill the conditions to obtain financing facilities from a formal financial institution. As such, they have to rely on family or friends for financing needs. The most critical challenge faced in this regard to Muslim micro-enterprises is finding out a way in which family and friends could give a financial helping hand without the involvement of riba (interest). At the same time, the person giving the financing can enjoy a profit. This paper aims to propose the Tawarruq Fardi Financing (TFF) model that Islamic micro-enterprises could use to fulfill their financial needs. It becomes a solution when obtaining financing from friends and family or any other third party who could be a private investor who does not want to engage in an equity relationship. Design/methodology/approach - This study adopts a qualitative research methodology, combining descriptive and content analysis using the inductive reasoning approach. Findings - The paper's outcome shows that the proposed TFF could assist Islamic micro-enterprises in obtaining Shariah-compliant financing without engaging in an equity partnership. It allows them to fulfill their financing needs bearing in mind the interest of both parties involved in the transaction. Originality/value - This research will assist Islamic micro-enterprises to find out a Shariah-compliant financing facility from family, friends and any other private investors without entering into an equity relationship. The proposed model would be a Shariah-compliant alternative to interest-free loans and engaging in an equity relationship for the sake of getting benefits for both parties involved in the transaction.

Keywords: Islamic finance; Islamic microfinance; New model; Tawarruq (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:prrpps:prr-08-2021-0047

DOI: 10.1108/PRR-08-2021-0047

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