1. Problem Statement:

The Small and Medium Enterprise (SMEs) have been growing immensely thanks to incentives and facilities provided by the financial services of which many have embraced and integrated Islamic Banking to cater for the needs of their Muslim clientele that is tailor made to their beliefs and religion. The Small and Medium Enterprises (SMEs) sector has continued to play an important role in the Kenyan Economy. The sectors contribution to the Gross Domestic Product (GDP) increased from 13.8% in 1993 to over 18% in 1999. Micro and Small Enterprises (MSEs) have been recognized as socio-economic and political development catalysts in both developed and developing economies.

Hove, Sibanda and Pooe (2014) established that Islamic banking had a positive and significant impact on both entrepreneurial motivation and firm competitiveness in South Africa. The study indicated that through Islamic banking, SMEs were able to access credit at lower interest rates through customer relationship management and profiling. In another study, Tuitoek(2012) established that offering sharia compliant products have improved the financial performance of commercial banks in Kenya. Salim (2014) identified various modes of financing used by Islamic banking including diminishing Musharaka, Ijara and Murababa. Islam, Yousufand Rahman (2014) conducted a comparative analysis of conventional and Islamic banks by looking at SME financing in Bangladesh. The findings indicated that disbursement of SME Loan by all selected conventional banks showed about 1.5 times growth from Year 2009-2011 as compared to disbursement of SME Loan by all Islamic banks that portrayed about 1.35 times growth. These studies explored other aspects of Islamic banking from different contexts which therefore limit their application in the current study. This therefore leaves a research gap that this study seek to fill by analyzing the issues of interest free loans, financial literacy and funds accessibility and their effects on Islamic banking and the growth of SMEs in Nairobi County.

Required:

1. Evaluate the problem statement and answer the following questions:

1. Formulate 3 possible objectives and 3 possible research questions. (3 marks)

ii) Suggest at least 3 data collection methods for the study giving reasons for each. (6 marks)

iii) Explain why a Quantitative Research Design would be appropriate for this study (6 marks)

2. Discuss the Characteristics of a good Research Problem. (5 marks)