title: An investigation of the adoption of Islamic financing instruments by small and medium enterprises in the Sultanate of Oman

authors: Al Balushi, Yasmeen

subjects: SMEs

abstract: This PhD thesis investigates the intention of Omani small and medium enterprise (SME) owner-managers to adopt Islamic financing instruments (IFIs). Traditionally, when deciding how to finance their businesses, owner-managers of SMEs in the Sultanate of Oman have had to rely on the conventional financing instruments offered by the Omani banking industry. However, the recent emergence of Islamic banking and finance as a new offering within Oman’s financial services industry has altered that situation. SME owner-managers in Oman can now choose between Islamic and non-Islamic finance options when making their financing decisions. Thus, gaining insight into which option they intend to choose is important, since the choice they make will change their enterprise’s financial structure. The research undertaken in this thesis is, therefore, significant, because it investigates the part that Islamic financing instruments can play in both stimulating economic growth in Oman’s SME sector and in encouraging a more equitable sharing of that growth.
Although capital structure theories grounded within the finance paradigm have enhanced our understanding of the capital structure puzzle, as Brealey, Myers, and Allen (2010) reveal, “how financial decisions are made” (p. 10) is a question that still needs to be answered. Finance researchers still need to be encouraged to continue their efforts to identify the missing pieces of the puzzle. To illustrate, such things as diverse nonfinancial and behavioural factors that influence capital structure decisions could be the missing elements of this puzzle.
Theoretical and empirical studies of capital structure have focused primarily on large listed firms; only a few studies have focused on the capital structure of SMEs. In addition, little is known about why financial choices vary among small businesses, especially how and why SME owner-managers make financial decisions. This gap in the literature is particularly evident when investigating the factors that influence the funding decision around Islamic financing in a country where Islamic finance represents a new banking sector offering.

Furthermore, the focus of the extant small business finance literature has centred primarily on the developed world. An assumption that its findings can be transferred to emerging economies is implicit, despite the fact that there are significant institutional differences between small businesses in the developing and developed worlds. These differences warrant scholarly attention. In responding to that need, this thesis produces three research papers that examine three interrelated phenomena. Through the lens of Omani SME owner-managers, these papers provide additional insights into how SME owner-managers evaluate and select the Islamic financing options for their firms that have recently been introduced in the Omani context.
The first paper, entitled “Islamic financial decision-making among SMEs in the Sultanate of Oman: An adaption of the theory of planned behaviour (TPB)”, investigates SMEs’ Islamic financial decision-making by adopting the theory of planned behaviour (TPB). As such, it is one of the few global studies that seeks to propose and apply a theoretically modified model of Ajzen’s (1991) theory of planned behaviour to investigate SME owner-managers’ financial behaviour. As is already known, small firms are financed differently from large firms (Moritz, Block, & Heinz, 2016), because their financial reasoning is influenced by both economic and noneconomic motives (Gallo, Tàpies, & Cappuyns, 2004). Moreover, it is argued that small businesses not only behave and act differently from larger firms, but that they also utilise different financing mechanisms (Berger & Udell, 1995). In order to better understand the financing behaviour of SME owner-managers, particularly SME owner-managers’ Islamic financial decision-making, a conceptual model which borrowed from behavioural psychology was developed.The paper argues that nonfinancial factors such as SME owner-managers’ attitudes, subjective norms, perceived behavioural control, and behavioural intentions largely affect the financial decisions of SMEs. While this study found that religiosity showed a significant negative relation, and is not a predictor of SME owner-managers’ intention to adopt Islamic financial instruments, awareness did show a significant positive relation and was an important factor in predicting Islamic finance instrument adoption intention.
The second paper, entitled “Determinants of the decision to adopt Islamic finance: Evidence from Oman”, explores whether Omani SME owner-managers’ intention to adopt Islamic finance is influenced by their knowledge of Islamic finance, their own characteristics, and/or their firm’s characteristics. Here the literature indicates that a complex array of factors influences SME owner-managers’ financing decisions (Romano, Tanewski, & Smyrnios, 2001). For example, entrepreneurial characteristics (Abdulsaleh & Worthington, 2013); business life cycle issues (La Rocca, La Rocca,& Cariola, 2011); age and size of the firm (Cassar, 2004); and, industry sector (MacKay & Phillips, 2005) have all been shown to be influential. However, it appears that this literature has not made explicit those factors that influence SME owners’ decisions on Islamic finance. Accordingly, this second paper explores whether or not SME owner-managers’ Islamic financial knowledge of profit and loss sharing (PLS) instruments such as musharakah and mudarabah, and nonprofit and loss sharing (non-PLS) instruments such as murabaha, along with personal characteristics (gender and education) influence their intention to adopt Islamic finance. While it was found that such knowledge does influence their decision-making, their firm’s characteristics were found to have no significant influence on SME owner-managers’ Islamic financial decisions.
The third paper, entitled “Omani SME perceptions towards Islamic financing systems”, investigates SME owner-managers’ awareness, willingness, and perceptions concerning Islamic financing instruments as an alternative finance sourcing decision in Omani SMEs. Much research has been conducted to investigate consumer attitudes and perception towards conventional financing. Similarly, many studies have explored consumer attitudes and perception towards Islamic finance. However, only limited studies look at SME owner-managers’ perception towards Islamic finance. In response to the important gap between the few empirical studies related to small businesses and their importance in the world economy (Zingales, 2000), this study explores SME owner-managers’ financing perception and understanding of the newly available IFI options within Oman as an emerging context.The results show that SME owner-managers are aware of Islamic banking principles and have knowledge of Islamic financial instruments, despite Islamic finance’s being new to the Omani banking industry. Interestingly, although the majority of the study’s participants indicated their intention to adopt this new finance method, they were motivated by special requirements other than finance. Their positive perception of Islamic financing methods could, therefore, play a significant role in developing the Islamic banking industry.
In the main, these three papers employed quantitative methods. For instance, their primary data were gathered from 385 SME owner-managers via face-to-face interview, a method commonly used in SME research (Berger & Black, 2011). The interviews took place in Muscat, Oman’s capital, between December 2016 and February 2017.Additionally, follow-up interviews with 86 SME owner-managers probed their reactions more deeply in order to gain more detailed understanding of attitudes to the newly introduced phenomenon of Islamic finance in Oman (Creswell, 2013). The data from these interviews are used in the third paper. It is worth pointing out here that this study is the largest of its kind undertaken in Oman.
To check hypotheses relevant in this study, statistical techniques were used. Factor analysis and hierarchical multiple regression were used for the first paper and Kruskal-Wallis’ one-way ANOVA nonparametric test and factor analysis were employed for the second paper. Descriptive and thematic analysis were used to analyse the data for the third paper.
Given the importance of the SME sector to the economic growth of Oman, it is believed that the findings of this research can assist policymakers who are targeting small businesses, because they need to recognise that the financing needs of small business are not constant, but rather change with the owner-managers’ characteristics, and that they should match their policies to SME owner-managers’ changing needs. Consequently, this study should enable Islamic banking to design financing programmes tailored to the specific needs of SME owner-managers, which will attract them to adopt the newly introduced phenomenon of Islamic finance, and which may, in turn, foster broader dissemination of Islamic financing.
Furthermore, this study will be important for policymakers concerned about SMEs’ financing, Islamic financial institutions, and new entrants into the Islamic banking industry, as it provides empirical evidence of Omanis’ views, and more specifically, those of Omani SME owner-managers, on the recent introduction of Islamic finance into the country. The insights this study offers should help them to develop the strategies required to attract SMEs and to construct policies and regulations to improve Oman’s Islamic banking industry, which, it is hoped, will enhance Oman’s economic development.
The three papers in this Ph.D. thesis have already appeared in a peer-reviewed journal.

text: An investigation of the adoption of Islamic financing instruments by small and medium enterprises in the Sultanate of Oman This PhD thesis investigates the intention of Omani small and medium enterprise (SME) owner-managers to adopt Islamic financing instruments (IFIs). Traditionally, when deciding how to finance their businesses, owner-managers of SMEs in the Sultanate of Oman have had to rely on the conventional financing instruments offered by the Omani banking industry. However, the recent emergence of Islamic banking and finance as a new offering within Oman’s financial services industry has altered that situation. SME owner-managers in Oman can now choose between Islamic and non-Islamic finance options when making their financing decisions. Thus, gaining insight into which option they intend to choose is important, since the choice they make will change their enterprise’s financial structure. The research undertaken in this thesis is, therefore, significant, because it investigates the part that Islamic financing instruments can play in both stimulating economic growth in Oman’s SME sector and in encouraging a more equitable sharing of that growth.
Although capital structure theories grounded within the finance paradigm have enhanced our understanding of the capital structure puzzle, as Brealey, Myers, and Allen (2010) reveal, “how financial decisions are made” (p. 10) is a question that still needs to be answered. Finance researchers still need to be encouraged to continue their efforts to identify the missing pieces of the puzzle. To illustrate, such things as diverse nonfinancial and behavioural factors that influence capital structure decisions could be the missing elements of this puzzle.
Theoretical and empirical studies of capital structure have focused primarily on large listed firms; only a few studies have focused on the capital structure of SMEs. In addition, little is known about why financial choices vary among small businesses, especially how and why SME owner-managers make financial decisions. This gap in the literature is particularly evident when investigating the factors that influence the funding decision around Islamic financing in a country where Islamic finance represents a new banking sector offering.

Furthermore, the focus of the extant small business finance literature has centred primarily on the developed world. An assumption that its findings can be transferred to emerging economies is implicit, despite the fact that there are significant institutional differences between small businesses in the developing and developed worlds. These differences warrant scholarly attention. In responding to that need, this thesis produces three research papers that examine three interrelated phenomena. Through the lens of Omani SME owner-managers, these papers provide additional insights into how SME owner-managers evaluate and select the Islamic financing options for their firms that have recently been introduced in the Omani context.
The first paper, entitled “Islamic financial decision-making among SMEs in the Sultanate of Oman: An adaption of the theory of planned behaviour (TPB)”, investigates SMEs’ Islamic financial decision-making by adopting the theory of planned behaviour (TPB). As such, it is one of the few global studies that seeks to propose and apply a theoretically modified model of Ajzen’s (1991) theory of planned behaviour to investigate SME owner-managers’ financial behaviour. As is already known, small firms are financed differently from large firms (Moritz, Block, & Heinz, 2016), because their financial reasoning is influenced by both economic and noneconomic motives (Gallo, Tàpies, & Cappuyns, 2004). Moreover, it is argued that small businesses not only behave and act differently from larger firms, but that they also utilise different financing mechanisms (Berger & Udell, 1995). In order to better understand the financing behaviour of SME owner-managers, particularly SME owner-managers’ Islamic financial decision-making, a conceptual model which borrowed from behavioural psychology was developed.The paper argues that nonfinancial factors such as SME owner-managers’ attitudes, subjective norms, perceived behavioural control, and behavioural intentions largely affect the financial decisions of SMEs. While this study found that religiosity showed a significant negative relation, and is not a predictor of SME owner-managers’ intention to adopt Islamic financial instruments, awareness did show a significant positive relation and was an important factor in predicting Islamic finance instrument adoption intention.
The second paper, entitled “Determinants of the decision to adopt Islamic finance: Evidence from Oman”, explores whether Omani SME owner-managers’ intention to adopt Islamic finance is influenced by their knowledge of Islamic finance, their own characteristics, and/or their firm’s characteristics. Here the literature indicates that a complex array of factors influences SME owner-managers’ financing decisions (Romano, Tanewski, & Smyrnios, 2001). For example, entrepreneurial characteristics (Abdulsaleh & Worthington, 2013); business life cycle issues (La Rocca, La Rocca,& Cariola, 2011); age and size of the firm (Cassar, 2004); and, industry sector (MacKay & Phillips, 2005) have all been shown to be influential. However, it appears that this literature has not made explicit those factors that influence SME owners’ decisions on Islamic finance. Accordingly, this second paper explores whether or not SME owner-managers’ Islamic financial knowledge of profit and loss sharing (PLS) instruments such as musharakah and mudarabah, and nonprofit and loss sharing (non-PLS) instruments such as murabaha, along with personal characteristics (gender and education) influence their intention to adopt Islamic finance. While it was found that such knowledge does influence their decision-making, their firm’s characteristics were found to have no significant influence on SME owner-managers’ Islamic financial decisions.
The third paper, entitled “Omani SME perceptions towards Islamic financing systems”, investigates SME owner-managers’ awareness, willingness, and perceptions concerning Islamic financing instruments as an alternative finance sourcing decision in Omani SMEs. Much research has been conducted to investigate consumer attitudes and perception towards conventional financing. Similarly, many studies have explored consumer attitudes and perception towards Islamic finance. However, only limited studies look at SME owner-managers’ perception towards Islamic finance. In response to the important gap between the few empirical studies related to small businesses and their importance in the world economy (Zingales, 2000), this study explores SME owner-managers’ financing perception and understanding of the newly available IFI options within Oman as an emerging context.The results show that SME owner-managers are aware of Islamic banking principles and have knowledge of Islamic financial instruments, despite Islamic finance’s being new to the Omani banking industry. Interestingly, although the majority of the study’s participants indicated their intention to adopt this new finance method, they were motivated by special requirements other than finance. Their positive perception of Islamic financing methods could, therefore, play a significant role in developing the Islamic banking industry.
In the main, these three papers employed quantitative methods. For instance, their primary data were gathered from 385 SME owner-managers via face-to-face interview, a method commonly used in SME research (Berger & Black, 2011). The interviews took place in Muscat, Oman’s capital, between December 2016 and February 2017.Additionally, follow-up interviews with 86 SME owner-managers probed their reactions more deeply in order to gain more detailed understanding of attitudes to the newly introduced phenomenon of Islamic finance in Oman (Creswell, 2013). The data from these interviews are used in the third paper. It is worth pointing out here that this study is the largest of its kind undertaken in Oman.
To check hypotheses relevant in this study, statistical techniques were used. Factor analysis and hierarchical multiple regression were used for the first paper and Kruskal-Wallis’ one-way ANOVA nonparametric test and factor analysis were employed for the second paper. Descriptive and thematic analysis were used to analyse the data for the third paper.
Given the importance of the SME sector to the economic growth of Oman, it is believed that the findings of this research can assist policymakers who are targeting small businesses, because they need to recognise that the financing needs of small business are not constant, but rather change with the owner-managers’ characteristics, and that they should match their policies to SME owner-managers’ changing needs. Consequently, this study should enable Islamic banking to design financing programmes tailored to the specific needs of SME owner-managers, which will attract them to adopt the newly introduced phenomenon of Islamic finance, and which may, in turn, foster broader dissemination of Islamic financing.
Furthermore, this study will be important for policymakers concerned about SMEs’ financing, Islamic financial institutions, and new entrants into the Islamic banking industry, as it provides empirical evidence of Omanis’ views, and more specifically, those of Omani SME owner-managers, on the recent introduction of Islamic finance into the country. The insights this study offers should help them to develop the strategies required to attract SMEs and to construct policies and regulations to improve Oman’s Islamic banking industry, which, it is hoped, will enhance Oman’s economic development.
The three papers in this Ph.D. thesis have already appeared in a peer-reviewed journal.

year: 2019

title: IP round-up: Recent decisions from the courts (May 2008)

authors: Kingsbury, Anna

subjects: law

abstract: This was a trade mark case in which the plaintiff, Portacom New Zealand Ltd, sought an interim injunction and orders requiring that the defendants remove "Port A Room" from all marketing materials and that any such branded materials be delivered up.

text: IP round-up: Recent decisions from the courts (May 2008) This was a trade mark case in which the plaintiff, Portacom New Zealand Ltd, sought an interim injunction and orders requiring that the defendants remove "Port A Room" from all marketing materials and that any such branded materials be delivered up.

year: 2008-05

title: Frozen rights?: The right to develop Maori treaty and aboriginal rights

authors: Joseph, Robert

subjects: Maori

abstract: Bishop Manuhuia Bennett often asked the question: "What did Maori call New Zealand before the arrival of the Pakeha [Europeans]?" After a deliberate pause, he would then simply utter: "Ours".

text: Frozen rights?: The right to develop Maori treaty and aboriginal rights Bishop Manuhuia Bennett often asked the question: "What did Maori call New Zealand before the arrival of the Pakeha [Europeans]?" After a deliberate pause, he would then simply utter: "Ours".

year: 2011