A proposed integrated Qardhul Hasan and equity-based micro-enterprise development (IQEMD) model for micro-enterprises in Kandahar, Afghanistan

Abstract

ABSTRACT: This study has developed the Integrated Qardhul Hasan and Equity-based Micro-enterprise Development (IQEMD) model that is aimed at enhancing financial and human capital development services for micro-enterprises. This model is mainly composed of three components: donors, Islamic microfinance institutions (IsMFIs), and micro-enterprises. The IsMFI will provide financing services in the form of Qardhul Hasan combined with human capital development services to economically poor micro-enterprises, with the aim of advancing them to the second stage of development where they become economically viable micro-enterprises. Then, the IsMFI can offer them Islamic equity-based financing arrangements such as Musharakah and Mudharaba. For human capital development, the IsMFI will build a training center where economically poor micro-enterprises can learn different skills development programs to equip them with various skills related to micro-enterprise development. Particularly, the model suggests ways of improving and meeting the financial and human capital development needs of micro-enterprises in Kandahar. The study used a mixed-methods (qualitative and quantitative) approach. In terms of the qualitative approach, the study used interviews and thematic analysis. The interview was conducted to validate the IQEMD model in terms of it’s suitability, applicability, and prospects. The interview findings revealed that the experts have positive perceptions and attitudes toward the IQEMD model. Besides, the experts suggested that this model is applicable and acceptable in the context of Kandahar and can contribute to the development of micro-enterprises. In terms of the quantitative approach, the study analyzed data based on the Theory of Reasoned Action (TRA) using partial least squares structural equation modeling (PLS-SEM). The results showed that the behavioral intention of micro-entrepreneurs to use the IQEMD model is positively and significantly impacted by their attitude and subjective norms. Furthermore, using binary logistic regression analysis, the study also found predictors of the willingness of micro-entrepreneurs to use the IQEMD model in terms of financing and human capital development. The results indicated that the number of years in business, gender, use of Qardhul hasan financing, and awareness of Islamic equity-based financing among micro-enterprises positively and significantly affect the probability of opting for the IQEMD model for financing. Meanwhile, the number of years in business, gender, and the amount of information provided positively and significantly affect the probability of opting for the IQEMD model for human capital development.