The objective of this study is to assess the impact of Islamic financing modes on employment through asset formation and value creation of Islamic Banking in Punjab, Pakistan. Data was collected from two randomly selected Islamic Banks in Pakistan namely Meezan Bank and Al-Baraka Bank (Pakistan) Ltd. Multistage sampling procedure was used for selection of sample respondents from three regions of Punjab. List frame of the study consisted of respondents/firms utilizing finance from selected Islamic Banks located in each district. The sample of the study comprised of 206 small and medium firms who utilized Islamic modes of financing to get financing for their business. Variables of the model comprised of employment generation, asset formation, technology, firm age and business size. Least square regression model was used for analysis of the cross sectional data. All the independent variables of the model have significant effect on dependent variable. Empirical results revealed that only asset formation has direct relationship with employment generation. Technology, firm age and business size have inverse relationship with employment generation capacity of the borrowing firms utilizing Islamic finance. The study concluded that in Pakistan, the SME's used financing tool to enhance the assets by adopting the technological change. The results of the study will support policy makers, practitioners and planners to make more informed business decisions.