A project Undertaken as Part of bsc (Hons) Economics with Finance degree, Westminster International University in Tashkent

Introduction

In the capitalistic world the welfare of society and economic growth is mostly depend on how the entrepreneurship is well grown. In order to have developed business sector, the market needs to have certain conditions. Financial system can be named as the main component. The better the financial market is organized the more productive are small businesses in the market. Especially, banking system, which is the main source of start-ups and medium enterprises, requires government control and intervention. Three main reasons can discourage the entrepreneur to start a business: first, difficulty with the accessibility of capital. Second, existence of high risk and third, lack of knowledge or experience. Islamic banking might be a good solution for the two above-mentioned obstacles. There is no doubt that due to commonly recognized characteristic of sharing profits and losses, which causes a risk sharing, and zero interest on their loans Islamic banking is making a decent growth in countries with Islamic beliefs. Interestingly, it has become a unique service for both Muslims and Non-Muslims and it seems to be a good solution for start-ups because of its unique features. Historically, the foundation and establishment of the Malaysian Islamic banking refers to the late 1960s. The first step was foundation of Pilgrims Management board (PMB) or the organization, which mobilized and collected savings for those people who were planning to go for the pilgrim (Hajj) to Mecca. Nearly after a decade the number of Muslims, looking for an alternative to the traditional banks boosted the demand for Islamic banking service. Accordingly, Malaysia was the first country who supported and established an official Islamic Banking system. In 1983, the government established Bank Islam and in a short period of time the bank was able to mobilize the funds from the general public and other corporate sectors. Malaysia is developing nation according to their economic performance and the Islamic Banking is an integral part of this development. Currently, the Islamic banking system is growing rapidly in Malaysia compared to other Asian countries. The proof is the fact that in 2004, the number of Islamic banks in Malaysia used to be only two but current year this figure reached up to 16 (Bank Negara Malaysia, 2017). Consequently, it would be comfortable to collect data and information about the Islamic banking for Malaysia. This piece of paper is to analyze the impact of Islamic banking on businesses as well as to examine how it can motivate the entrepreneur and improve the performances of medium enterprises in Malaysia. Consequently, the following paper studies and lists those principles of Islamic banking, which can encourage entrepreneurship directly while the capital is provided on interest free condition. As a result, this can be the major tool to give a boost to the entrepreneurship in Malaysia.
Review of the literature has been provided in the following section, theoretical and empirical studies have been done on correlation between Islamic banking and entrepreneur motivation and business performance. Finally, the project will be summarized and some recommendation will be provided.