The Impact of Microfinance Services on Socio-Economic Welfare of Urban Vulnerable Households in Malaysia

  • Her-Loke Koh Multimedia University
  • Sakiru Adebola Solarin University of Nottingham Malaysia
  • Yee-Yen Yuen Multimedia University
  • Suganthi Ramasamy Multimedia University
  • Guan-Gan Goh Multimedia University
Keywords: Microfinance, Socio-Economic Welfare, Financial Services, Non-Financial Services

Abstract

The main objective of this study is to examine the effect of microfinance services on the socio-economic welfare of urban households in Malaysia. We distribute questionnaires to 400 respondents across three different urban areas in Malaysia in order to collect the relevant data for this study. Quota sampling is employed in the process of collecting the data. Incorporating income as a mediating variable into the model, the results show that most of the services provided by the microfinance institutions including microcredit, micro insurance and training have significant effect on socio-economic welfare. Income is also observed to have a significant impact on socio-economic welfare. With the exception of training, the microfinance services also have significant impact on income. The results further show that most of the microfinance services have indirect effect on welfare through income. The recommendations of this study are detailed in the body of the paper.

References

Alam, J. (1988). Rural Poor Program in Bangladesh. UNDP, Dhaka, Bangladesh.

Al-Mamun, A., Mazumder, M. N. H., & Malarvizhi, C. A. (2014). Measuring the Effect of Amanah Ikhtiar Malaysia's Microcredit Programme on Economic Vulnerability among Hardcore Poor Households. Progress in Development Studies, 14(1), 49-59. https://doi.org/10.1177/1464993413504351

Al-Mamun, A., Ibrahim, M. A. H. B., Muniady, R., Ismail, M. B., Nawi, N. B. C., & Nasir, N. A. B. M. (2018). Development programs, household income and economic vulnerability: A study among low-income households in Peninsular Malaysia. World Journal of Entrepreneurship, Management and Sustainable Development, 14(4), 353-366. https://doi.org/10.1108/WJEMSD-01-2018-0008

Al-Shami, S. S. A., Majid, I. B. A., Rashid, N. A., & Hamid, M. S. R. B. A. (2014). Conceptual framework: The role of microfinance on the wellbeing of poor people cases studies from Malaysia and Yemen. Asian Social Science, 10(1), 230-242. https://doi.org/10.5539/ass.v10n1p230

Amanah Ikthiar Malaysia. (2016). Amanah Ikhtiar Malaysia. http://aim.gov.my/

Amin, H., Abdul-Rahman, A. R., & Abdul-Razak, D. (2013). An Integrative Approach for Understanding Islamic Home Financing Adoption in Malaysia. International Journal of Bank Marketing, 31(7), 544-573. https://doi.org/10.1108/IJBM-02-2013-0008

Andersson, J. A., & D'Souza, S. (2014). From adoption claims to understanding farmers and contexts: A literature review of Conservation Agriculture (CA) adoption among smallholder farmers in southern Africa. Agriculture, Ecosystems and Environment, 187, 116-132. https://doi.org/10.1016/j.agee.2013.08.008

Attanasio, O., Augsburg, B., De Haas, R., Fitzsimons, E., & Harmgart, H. (2011). Group lending or individual lending? Evidence from a randomised field experiment in Mongolia. (IFS Working Papers No. W11/20). Institute of Fiscal Studies. https://doi.org/10.1920/wp.ifs.2011.1120

Babajide, A. A., Taiwo, J. N., & Isibor, J. A. (2015). Microsavings Mobilization Innovations and Poverty Alleviation in Nigeria. Mediterranean Journal of Social Sciences, 6(4), 375-387. https://doi.org/10.5901/mjss.2015.v6n4p375

Beattie, R. (2000). Social protection for all: But how?. International Labour Review, 139(2), 129-148. https://doi.org/10.1111/j.1564-913X.2000.tb00407.x

Brannen, C. (2010). An impact study of the Village Savings and Loan Association (VSLA) program in Zanzibar, Tanzania (Doctoral dissertation, Wesleyan University, Connecticut). https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.204.1554&rep=rep1&type=pdf

Chin, W. W. (1998). Commentary: Issues and opinion on structural equation modeling. MIS Quarterly, 22(1), vii-xvi.

Chin, W. W. (2010). How to write up and report PLS analyses. In Handbook of partial least squares (pp. 655-690). Springer Berlin Heidelberg. https://doi.org/10.1007/978-3-540-32827-8_29

Collins, D., Morduch, J., Rutherford, S., & Ruthven, O. (2009). Portfolios of the poor: How the world's poor live on $2 a day. Princeton: Princeton University Press.

Department of Statistic Malaysia. (DoSM) (2010). Monthly statistical bulletin. http://www.statistics.gov.my

Department of Statistics Malaysia. (DoSM) (2017). Household Income and Basic Amenities Survey 2016. https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=120&bul_ id=RUZ5REwveU1ra1hGL21JWVlPRmU2Zz09&menu_id=amVoWU54UTl0a21NWmdhMjFMMWcyZz09

Durrani, M. K. K., Usman, A., Malik, M. I., & Ahmad, S. (2011). Role of Micro Finance in Reducing Poverty: A Look at Social and Economic Factors. International Journal of Business and Social Science, 21(2), 138-144.

Economic Planning Unit. (EPU) (2015). The Eleventh Malaysian Plan (2016-2020). Putrajaya: Malaysia.

Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of marketing research, 18(1), 39-50. https://doi.org/10.1177/002224378101800104

Frijters, P., & Van Praag, B. (1999). The Measurement of Welfare and Well-being: The Leyden Approach. Foundations of Hedonic Psychology, Scientific Perspectives on Enjoyment and Suffering, New York: Russel Sage Foundation.

Haile, H. B., Bock, B., & Folmer, H. (2012). Microfinance and female empowerment: Do institutions matter? Women's Studies International Forum, 35, 256-265. http://dx.doi.org/10.1016/j.wsif.2012.04.001

Hair Jr, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2016). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). Sage Publications. https://doi.org/10.15358/9783800653614

Hamdan, H., & Hussin, W. S. W. (2012). The importance of monitoring and entrepreneurship concept as future direction of microfinance in Malaysia: Case study in the state of Selangor. Journal of Global Entrepreneurship, 3(1), 1-25.

Hassan, S., Abdul Rahman, R., Abu Bakar, N., & Lahsasna, A. (2012, May 9-10). Towards triple bottom lines microfinance institutions (MFIs) - a case study of Amanah Ikhtiar Malaysia (AIM). Paper presented at the International Conference on Excellence in Business, University of Sharjah, UAE.

Hoamid, A. A., Zain, A. Y. M., Al-Matari, Y. A., Minai, M. S., & Ahmad, F. B. (2017). The Role of Customer-Focused Strategies to Improve Islamic Microfinance Institutions Performance: Empirical Evidence and Lessons from Yemen. International Review of Management and Marketing, 7(1), 291-299.

Hermes, N., Lensink, R., & Meesters, A. (2011). Outreach and efficiency of microfinance institutions. World Development, 39(6), 938-948. https://doi.org/10.1016/j.worlddev.2009.10.018

Huque, M. (2017). Effectiveness of Micro-Credit on Urban Poor Women in Dhaka City: An Empirical Study. International Journal of Research in Humanities and Social Studies, 4(10), 1-8.

Karnani, A. (2007). Microfinance Misses its Mark. Stanford Social Innovation Review, 5(3), 34-40.

Kaur, M. (2016). Urban middle class now 40% poorer. MToday News Sdn Bhd.

Kireti, G. W., & Sakwa, M. (2014). Socio-Economic Effects of Microfinance Services on Women: The Case of Rosewo Microfinance, Nakuru County, Kenya. International Journal of Academic Research in Economics and Management Sciences, 3(3), 43-59. https://doi.org/10.6007/IJAREMS/v3-i3/902

Krejcie, R. V., & Morgan, D. W. (1970). Determining sample size for research activities. Educational and psychological measurement, 30(3), 607-610. https://doi.org/10.1177/001316447003000308

Li, X., Gan, C., & Hu, B. (2011). The Welfare Impact of Microcredit on Rural Households in China. The Journal of Socio-Economics, 40(4), 404-411. https://doi.org/10.1016/j.socec.2011.04.012

Macha, J. J., Chong, Y. L., & Chen, I. C. (2018). Rural Household's Intention to Use Microfinance in Tanzania. International Journal of Business, 23(2), 198-216.

Mahjabeen, R. (2008). Microfinancing in Bangladesh: Impact on households, consumption and welfare. Journal of Policy modeling, 30(6), 1083-1092. https://doi.org/10.1016/j.jpolmod.2007.12.007

Matul, M. (2005). Demand for Microinsurance in Georgia: Quantitative Study Results. Microinsurance Centre. http://www.microinsurancecentre.org/component/edocman/ market-development/demand-studies/demand-for-microinsurance-in-georgia-quantitative-study-results.html?Itemid=

Mazvimavi, K., & Twomlow, S. (2009). Socioeconomic and institutional factors influencing adoption of conservation farming by vulnerable households in Zimbabwe. Agricultural systems, 101(1-2), 20-29. https://doi.org/10.1016/j.agsy.2009.02.002

Mbithi, N. K. (2016). Effectiveness of Microfinance Training Programmes on Women'S Financial Skills in Self-Help Groups in Limuru Constituency (Doctoral dissertation, University of Nairobi). http://hdl.handle.net/11295/100398

Ministry of Finance (2007). Economic Report 2007/2008. Putrajaya: Jabatan Perangkaan Malaysia.

Mokhtar, S. H. (2011). Microfinance performance in Malaysia (Doctoral dissertation, Lincoln University, New Zealand). https://researcharchive.lincoln.ac.nz/bitstream/handle/10182/4186/Mokhtar_PhD.pdf

Morduch, J., & Haley, B. (2002). Analysis of the effects of microfinance on poverty reduction. New York: NYU Wagner Working Paper No. 1014.

Mungai, D. W. (2015). The effect of micro-finance service on the growth of small and medium enterprises in Kajiado County (Doctoral dissertation, University of Nairobi). http://erepository.uonbi.ac.ke/bitstream/handle/11295/94168/Mungai_The?sequence=3

Mwangi, R. N. (2015). The Effect of Microfinance Services on Economic Empowerment of Small-Scale Farmers in Kiambu County (Doctoral dissertation, University of Nairobi). http://erepository.uonbi.ac.ke/bitstream/handle/11295/95213/Mwangi_The%20Effect%20Of%20Microfinance%20Services%20On%20Economic%20Empowerment%20Of%20Small%20Scale%20Farmers%20In%20Kiambu%20County.pdf?sequence=1

Mwewa, N. M. (2013). The effects of microfinance services on the growth of small and medium enterprises in Machakos County (Doctoral dissertation, University of Nairobi). http://erepository.uonbi.ac.ke/handle/11295/58984

Nader, Y. F. (2008). Microcredit and The Socio-Economic Wellbeing of Women and Their Families in Cairo. The Journal of Socio-Economics, 37(2), 644-656. https://doi.org/10.1016/j.socec.2007.10.008

Nawai, N., Noor, M. S. Z., & Shariff, M. N. M. (2011). The Importance of Microfinancing to The Microenterprises Development in Malaysia's Experience. Asian Social Science, 7(12), 226-238. https://doi.org/10.5539/ass.v7n12p226

Okurut, F. N., Banga, M., & Mukungu, A. (2004). Microfinance and poverty reduction in Uganda: achievements and challenges. (EPRC Research Series No 41). Economic Policy Research Centre. https://www.findevgateway.org/sites/default/files/publications/files/mfg-en-paper-microfinance-and-poverty-reduction-in-uganda-achievements-and-challenges-apr-2004.pdf

Omar, M. Z., Noor, C. S. M., & Dahalan, N. (2012). The Economic Performance of the Amanah Ikhtiar Malaysia Rural Microcredit Programme: A Case Study in Kedah. World Journal of Social Sciences, 2(5), 286-302.

Omoro, N. O., & Omwange, A. M. (2013). The Utilization of Microfinance Loans and Household Welfare in the Emerging Markets. European International Journal of Science and Technology, 2(3), 59-78.

Owuor, M. A. (2015). Effect of microfinance services on the growth of women owned small and medium enterprises in Ruiru Sub-county (Doctoral dissertation, University of Nairobi). http://erepository.uonbi.ac.ke/bitstream/handle/11295/94142/Owuor_Effect%20of%20microfinance%20services%20on%20the%20growth%20of%20women.pdf?isAllowed=y&sequence=3

Patten, M. L. (2016). Questionnaire research: A practical guide. USA: Routledge. https://doi.org/10.4324/9781315265858

Paul, K. N., Nyaga, J., & Karoki, J. M. (2013). An evaluation of legal, legislative and financial factors affecting performance of women micro entrepreneurs in Kenya. European Journal of Business and Management, 5(8), 16-26.

Rulindo, R., & Pramanik, A. H. (2013). Finding a way to enhance impact of Islamic microfinance: The role of spiritual and religious enhancement programmes. Developing Country Studies, 3(7), 41-52.

Saad, N. M., & Duasa, J. (2010). An Economic Impact Assessment of a Microcredit Program in Malaysia: The Case of Amanah Ikhtiar Malaysia (AIM). International Journal of Business & Society, 12(1), 1-14.

Salia, P. J. (2014). The Effect of Microcredit on The Household Welfare: Empirical Evidences from Women Micro-entrepreneurs in Tanzania. International Journal of Academic Research in Business and Social Sciences, 4(5), 259. https://doi.org/10.6007/IJARBSS/v4-i5/853

Sarpong, A. (2014). Multinomial Logistic Analysis of "SUSU" Contribution in Ghana. Ekonomski-i Socijalni Razvoj, 1(1), 96-105.

Seng, K. (2017). Rethinking the Effects of Microcredit on Household Welfare in Cambodia. The Journal of Development Studies, 54(9), 1496-1512. https://doi.org/10.1080/00220388.2017.1299139

Shil, P., & Nath, B. (2013) D. Micro-Insurance-A Step Towards Inclusion of Economically Poor to The Umbrella of Insurance. Prayas-An International Journal of Multidisciplinary Studies (PIJMS) is The First Open Access, 56(1), 1-102.

Tsafe, B. M., & Rahman, R. A. (2014). Effects of Spirituality on Board Service Performance in Malaysian Microfinance Firms. Journal of Finance, Accounting and Management, 5(1), 675-688.

Wairimu, Z., & Mwilaria, S. M. (2017). Microfinance Institutions' Social Intermediation and Micro and Small Enterprises Survival in Thika Town, Kenya. Asia Pacific Journal of Multidisciplinary Research, 5(2), 87-93.

Wahid, A. (1994). The Grameen Bank and poverty alleviation in Bangladesh. American Journal of Economics and Sociology, 53(1), 1-15. https://doi.org/10.1111/j.1536-7150.1994.tb02666.x

World Bank. (2019). The World Bank Statistics: Malaysia. Malaysia: The World Bank.

Published
2021-08-12
How to Cite
Her-Loke Koh, Sakiru Adebola Solarin, Yee-Yen Yuen, Suganthi Ramasamy, & Guan-Gan Goh. (2021). The Impact of Microfinance Services on Socio-Economic Welfare of Urban Vulnerable Households in Malaysia. International Journal of Business and Society, 22(2), 696-712. https://doi.org/10.33736/ijbs.3752.2021