Does Microcredit Benefit Microbusinesses? Lessons from Microcredit Agencies in Malaysia

Abstract

Microbusinesses are popular and profitable activities that help economic development and growth. However, most microbusinesses are not sustainable due to borrowers’ main challenges such as limited loan size, insufficient government support, lack of training, and high-interest loan rates. Limited studies have been conducted on the business performance of microcredit borrowers in Kelantan. Therefore, this study investigated the impacts of microcredit elements, namely loan size, management fees, tenure, mode of payment, and help and support toward the microbusiness performance in Kota Bharu, Kelantan. This study employed a quantitative research methodology by distributing a survey questionnaire to 300 borrowers from Amanah Ikhtiar Malaysia and Tabung Ekonomi Kumpulan Usaha Niaga in Kota Bharu. Finally, 131 clean datasets were used to run the correlation and regression analyses to identify relationships and significant impacts in the datasets. The results revealed that the mode of payment has the least significant relationship with and did not impact microbusiness performance. Loan size, management fees, and help and support positively and significantly impact microbusiness performance. Conversely, tenure negatively but significantly affects microbusiness performance. All the microcredit elements in this study explained 83.4% of microbusiness performance.