Microfinance Service for Micro-Enterprise: Good Practices and Performance of Selected Microfinance Institutions in Malaysia

The attractiveness of microfinance programs lies in the fact that they provide a mechanism to link micro-enterpreneurs to the much needed credit which are normally inaccessible from the formal financial institutions. Microfinance programs enable micro-enterpreneurs to expand existing economic activities and consequently in scaling up their income. Furthermore, microfinance programs seem to appeal to policy makers as they promote the idea of “self-reliance” rather than “dependency” particularly on the government. In general, the aim of this study is to document microfinance services in Malaysia. Specifically, the objective is to identify “best practices” offered by four microfinance institutions (MFIs), namely, Amanah Ikhtiar Malaysia, Tabung Ekonomi Kumpulan Usaha Niaga, Koperasi Kredit Rakyat, and Bank Pertanian Malaysia.We also examine the performance of these MFIs in terms of their delivery mechanism, outreach and sustainability. In-depth interviews with managers of MFIs and borrowers reveal best practices from each MFI. Close monitoring of and a close relationship with borrowers appear to be important for early detection of any problem. Another aspect that may be important is building up loyalty and developing reliability among members. A close and informal relationship with borrowers may also help in monitoring and early detection of problems that may arise in non-repayment of loans. Other factors that may be considered important to the success of a microfinance scheme are cooperation and coordination among various agencies that provide additional support to borrowers. Indirectly, these support systems contribute to the success of a client’s project.