Academic journal article Asian Social Science

Examining the Effect of Amanah Ikhtiar Malaysia's Microcredit Program on Microenterprise Assets in Rural Malaysia

Academic journal article Asian Social Science

Examining the Effect of Amanah Ikhtiar Malaysia's Microcredit Program on Microenterprise Assets in Rural Malaysia

Article excerpt


Microenterprise often considered as an antecedent for generating income and employment, which leads to a decline in overall poverty rate and other aspects of sustainable socio-economic development. The objective of this study is to identify the impact of Amanah Ikhtiar Malaysia's (AIM) microcredit program on microenterprise assets owned by poor women in rural Peninsular Malaysia. In order to advance our understanding on the topic, contribute to the existing literature and to obtain the above mentioned objective, we employed a cross sectional design with stratified random sampling method. Data was collected from 281 rural clients selected from seven branches in five states in Peninsular Malaysia. Findings showed that the current market value of livestock's, agricultural/production equipments, agricultural stock/raw materials, enterprise assets and motor vehicles owned by old client respondents were relatively higher than that of new client respondents. Study also revealed that the mean market value of microenterprise assets owned by old clients is significantly higher than that of new clients. Therefore, there is a need to give emphasis on providing adequate training, favorable environment, and flexible and diversified loan programs in order to promote sustainable microenterprise development.

Keywords: Microcredit, Poverty, Microenterprise, Assets, Malaysia

1. Introduction

Reducing poverty and unemployment rate through promoting microenterprise development are often the most frequently stated objective of sustainable socio-economic development programs. As well paid employment opportunities are limited in developing economies; a large segment of the population tends to push for more profitable alternatives which resulted in increasing the rate of new microenterprises (ADB, 1997). As reported by ADB (1997), microenterprises account for more than 60% of all enterprises and up to 50% of paid employment. The overwhelming growth of microenterprises in Asian economies is remarkable as they contribute significantly to the development of these emerging economies. The growth rate might surpass other stakeholders of businesses in terms of their contribution to GDP of these economies. Access to finance, business development training and supportive environment are considered as the key elements for the development of sustainable microenterprises (USAID, 2011). The vital role of microfinance organizations in developing microenterprises are well documented in the microenterprise development literature.

Microenterprises are generally owned by low-income households, are, therefore, found to be the most vulnerable to decapitalization to meet household requirements in all types of emergencies. As mentioned by ADB (1997), fixed assets and inventories are often sold to meet the consumption requirement, which bring the microenterprise to its end. Supportive financial services can support and promote microenterprise development by providing a safety net of essential social services, consumptions and emergencies. Microfinance organizations of all over the world are providing supportive financial services for microenterprise development. Microcredit is a collection of banking practices appeared to provide small loans and accept small saving deposits. Microcredit, as defined by Robinson (2001), is a small scale financial services - commonly credit and savings - provided to poor and hardcore poor people who farm, fish or herd. The Asian Development Bank (2009) defines microcredit as the provision of a wide range of financial services which includes small amount of loans, small deposits and microinsurance to poor microentrepreneurs. Since microcredit has been providing financial supports as a development initiative commonly to the poor rural women in order to enable them to initiate or improve the income generating activities through microenterprises, it is therefore expected that the small amount of collateral free credit and training provided by Amanah Ikhtiar Malaysia would lead to an increase in microenterprise assets owned by poor clients and their households in rural Peninsular Malaysia. …

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