Islamic Finance FAQs Explained #

In a conventional SME loan, the rate is calculated from the cash operating cycle of the client’s business before extending the loan. It also extends financing on the entire COGS (direct labour, materials and factory overheads)

An Islamic SME loan calculates the total operating cycle of the business before extending credit on a deferred schedule. Thel financing will only be extended on assets, thus no financing on direct labour, fuel, energy, power nor depreciation cost.

Thus in an Islamic SME loan, businesses enjoy a greater duration to pay back the loan allowing the business more room to manage their liquidity.