The article talks about the great interest in the Islamic financial system in our country as well as in many countries of the world. The effects of the application of the Islamic financial system and interest-free banking, which have been in the center of attention in recent times, on entrepreneurial activity have been investigated. A modern concept of collective efficiency has been recommended in Islam, moving away from self-interest and the individualism of a materialistic economy. Some scholars of the West consider the use of Islamic banking more suitable for economic development. Answers to questions such as what are the advantages of the economic system subject to Islamic principles and how they can be effectively used are contained in the article. This study allows us to see the current state of Islamic banking in our country and evaluate the shortcomings of the system. It was discussed whether the legislation of the Republic of Azerbaijan is suitable for the application of this system, and the necessity of making additions and changes. Also, in the article, the countries that apply the Islamic financial system in public administration were considered as a model. The positive results of the adoption of this field in the economy in the development of entrepreneurship, especially small and medium entrepreneurship, were discussed. The article mentions that with the development of Islamic banking, entrepreneurship will be supported and economic growth will be ensured indirectly. The presence of favorable conditions and potential for the application of this system has not been overlooked. It is also noted that the future of Islamic finance depends not only on the country's political leaders, but mainly on the entire population. After the global crisis, the interest in this field has clearly increased. The pace of innovation and development of Islamic finance in the last ten years proves that this field is the center of attention of the whole world. Taking into account the mentioned facts, the role of this system in the development of SMEs was evaluated.
Islamic finance, small and medium entrepreneurship, interest-free banking, Islamic banking.