A MODEL OF A SHARIAH COMPLIANT CREDIT CLEARING SYSTEM TO FACILITATE WORKING CAPITAL MANAGEMENT FOR MICRO, SMALL AND MEDIUM ENTERPRISES

Abstract

MSMEs enhance competition through economy-wide entrepreneurship, encouraging innovation and improving efficiency as their industries grow. In an increasingly globalized marketplace, it is important for local MSMEs to remain competitive in order to survive. Due to their size, they face many problems with regards to business operations. One of the main problems is access to financing for working capital management. The paper identifies the main problems faced by local MSMEs in raising finance to meet their working capital requirements, and also discusses the usage of trade credit within local MSMEs, and its impact on working capital management. The paper then proposes an alternative credit-clearing strategy that utilizes currency is backed by trade credit that can be employed by MSMEs to boost their liquidity positions. The proposed system directly benefits MSMEs, clearing houses, banks and local governments. In addition, this research also discusses alternative income generation methods for clearing houses, potential problems and remedies, and Shariah compliance