Efficacy of Microfinance Schemes in Enhancing Economic Wealth of Indian Micro and Small Entrepreneurs in Malaysia
thesis
posted on 2017-03-20, 00:22 authored by Jeyanthi ThuraisinghamMicro and small
entrepreneurs are among the key engines of economic growth and sources of
wealth accumulation in most countries. While significant support has been
provided by governments in most countries to nurture the growth and development
of micro and small entrepreneurs, there are certain segments of these class of
entrepreneurs that have been excluded from the main stream financial system due
to lack of collateral. These segments of the entrepreneurs that are caught in
this dilemma are often those from the marginalised communities or sometimes
called the Bottom 40% of society (B40).
To ensure this group of entrepreneurs gain access to the much needed capital for business development, governments in many countries have introduced microfinance schemes. These financial inclusion programs are used as an important development tool to close the income gap between the ‘haves’ and ‘have-nots’ by creating self-employment opportunities for marginalised communities. The Malaysian government has introduced a number of microfinance programs since the 1980s to create self-employment for the lower income group to enable them to break away from the ‘poverty trap’ that plagues them. These measures, to some extent, have reduced poverty in Malaysia, especially among the Bumiputra community.
However, the majority of the Indian micro and small businesses have not received the same level of support as their Bumiputra counterparts from 1980s to 2012. However, under the leadership of Prime Minister Najib Abdul Razak, a number of microfinance schemes were created specifically to cater for the Indian entrepreneurs from 2012 onwards. However, efficacy of these initiatives in raising the economic wealth of Indian micro and small enterprises have not been studied in literature. Thus, the primary objective of this study is to assess if the microfinance schemes provided for the micro and small Indian businesses were effective in increasing their socioeconomic development.
In this study, a new theoretical model incorporating key financial and economic theories such as the Institutional Theory, Social Capital Theory, User Acceptance Theory and other theories related to individual deficiencies, cultural belief systems and geographical distances were developed to study the research objectives outlined in the thesis. More specifically, this integrated theoretical model was used to capture the factors that encourage and hinder the intention to use microfinance schemes among Indian micro and small entrepreneurs in Malaysia. The model also further examined the impact of microfinance use on the socioeconomic wellbeing of these firms.
To capture the microfinance ecosystem for the Indian micro and small businesses using this new theoretical model, the Partial Least Squares-Structural Equations (PLS-SEM) method for a sample of 424 entrepreneurs from Selangor and Wilayah Persekutuan (Federal Territory) in Malaysia were studied. These two locations were chosen because they had the highest number of Indian communities and enterprises. The study also used the LOGIT model to examine the factors that raised the probability of loan default among Indian micro and small businesses.
Based on the empirical analysis, key policies and strategies to increase the use of microfinance schemes among micro and small Indian businesses are proposed in this thesis. The study also articulates key programs to reduce the default of loan repayments among the loan recipients. Results from this study are not only valuable for Malaysia in creating a sustainable microfinance ecosystem that meet the needs of Indian micro and small enterprises; it also to provides invaluable insights for other developing countries who are keen to create an efficient, sustainable and inclusive financial system for those who would otherwise be excluded from the mainstream financial system.
To ensure this group of entrepreneurs gain access to the much needed capital for business development, governments in many countries have introduced microfinance schemes. These financial inclusion programs are used as an important development tool to close the income gap between the ‘haves’ and ‘have-nots’ by creating self-employment opportunities for marginalised communities. The Malaysian government has introduced a number of microfinance programs since the 1980s to create self-employment for the lower income group to enable them to break away from the ‘poverty trap’ that plagues them. These measures, to some extent, have reduced poverty in Malaysia, especially among the Bumiputra community.
However, the majority of the Indian micro and small businesses have not received the same level of support as their Bumiputra counterparts from 1980s to 2012. However, under the leadership of Prime Minister Najib Abdul Razak, a number of microfinance schemes were created specifically to cater for the Indian entrepreneurs from 2012 onwards. However, efficacy of these initiatives in raising the economic wealth of Indian micro and small enterprises have not been studied in literature. Thus, the primary objective of this study is to assess if the microfinance schemes provided for the micro and small Indian businesses were effective in increasing their socioeconomic development.
In this study, a new theoretical model incorporating key financial and economic theories such as the Institutional Theory, Social Capital Theory, User Acceptance Theory and other theories related to individual deficiencies, cultural belief systems and geographical distances were developed to study the research objectives outlined in the thesis. More specifically, this integrated theoretical model was used to capture the factors that encourage and hinder the intention to use microfinance schemes among Indian micro and small entrepreneurs in Malaysia. The model also further examined the impact of microfinance use on the socioeconomic wellbeing of these firms.
To capture the microfinance ecosystem for the Indian micro and small businesses using this new theoretical model, the Partial Least Squares-Structural Equations (PLS-SEM) method for a sample of 424 entrepreneurs from Selangor and Wilayah Persekutuan (Federal Territory) in Malaysia were studied. These two locations were chosen because they had the highest number of Indian communities and enterprises. The study also used the LOGIT model to examine the factors that raised the probability of loan default among Indian micro and small businesses.
Based on the empirical analysis, key policies and strategies to increase the use of microfinance schemes among micro and small Indian businesses are proposed in this thesis. The study also articulates key programs to reduce the default of loan repayments among the loan recipients. Results from this study are not only valuable for Malaysia in creating a sustainable microfinance ecosystem that meet the needs of Indian micro and small enterprises; it also to provides invaluable insights for other developing countries who are keen to create an efficient, sustainable and inclusive financial system for those who would otherwise be excluded from the mainstream financial system.
