Bank Financing for Small and Medium Enterprises in Nigeria: Mudharabah Vs Usury

This paper presents a comparative analysis of the more viable SMEs financing in Nigeria. The study incorporates NPV technique to determine whether conventional banks usury is more viable than Islamic bank mudharabah financing for SMEs growth and innovation. Results based on the difference between the present value of entire loans receivable and the discounted loans payable from 2000 – 2017 sampled periods showed that mudharabah has a positive and higher NPV thus it is far better and more worthwhile for enterprises to grow and innovate than the usury source of finance. Therefore, this study suggests that SMEs should utilize Islamic bank mudharabah financing in order to raise profitable funds for investment, expand their businesses and acquire the latest technology that ensures their competitiveness and growth and that of the nation as a whole. Hence, this study concludes that mudharabah is a just source of finance that promotes equity, income redistribution and enhances growth and innovation of SMEs in Nigeria.