Sharia External Financing Alternatives for Business Expansion Study Case: PT. XYZ

Abstract

This study investigates sharia compliance external sources of financing for SME’s business expansion. The object of this study is PT. XYZ that operates in the security service business entity of outsourcing industry. In the last five years until 2022 XYZ has declined in number of clients growth. Fortunately, in 2023 XYZ received an offer to supply 500 security personnel that will increase its sales growth to 134%. This growth is a lot higher than the internal and sustainable growth rate of the company, and hence it needs external financing of IDR 5.2 Billion to support the business expansion. The data collected in this research is through primary and secondary data from a semi-structured interview, five years of financial reports and desk research method. This study examines three alternatives of external Sharia financing namely Islamic Bank financing, Sukuk Issuance and Stock Issuance. XYZ needs to choose one alternative that makes the financial performance of the company healthy and also provides the most worthy risk-return to the equity holders. According to the financial ratios, DCF company valuation and risk-return analysis, this study finds that Sukuk is the best alternative external source of financing for XYZ because it makes the financial performance of the company healthy and also provides a desirable returns for the shareholders with lower risks. XYZ and others SMEs could use this alternative source of external financing to support business expansion. Sukuk can be issued through a funding campaign within a specified period in an authorized and credible Islamic Securities Crowdfunding (I-SCF) platforms.