Human Capital, Credit, And Startup Motives: A Study Among Rural Micro-Enterprises In Malaysia

To minimize poverty and inequality, Amanah Ikhtiar Malaysia (AIM) has been providing assistance for the development and growth of micro-enterprises. AIM was established in 1987, to provide small-scaled financial services and training to poor households in order to improve their socio-economic conditions. AIM also provides a wide range of training to the poor and hardcore poor borrowers, in order to improve their ability to find new income generating activities, select appropriate income generating activities, use the loan suitably, and to improve their money management skills. In order to reevaluate and elucidate ‘what and where’ to focus while redesigning AIM’s credit and training programs, this action research project was initiated to examine the role of human capital, credit, and startup motives in micro-enterprise performance. This study employed a cross-sectional design and a quantitative approach. This study also adopted the group statistics that have been most often used known as the ‘average effect of treatment of treated’, which measures the impact on the micro-enterprise performance. A list of 601 most successful borrowers and micro-entrepreneurs was provided by AIM. The borrowers were selected based on length of participation (more than five years) and average monthly income from micro-enterprise (= RM5000). Out of 601 borrowers, complete data was collected from 407 most successful micro-entrepreneurs of AIM. A structured interview method was adopted; all data were collected through face-to-face interviews. After the data was collected, it was analyzed and summarized in an easy-to-understand format for interpretations and tabulations. Analysis starts with descriptive analysis, followed by factor analysis, reliability analysis, correlation analysis, and regression analysis. The ages of 72% of the selected successful micro-entrepreneurs from AIM are above 41. Only 2% of the respondents are below 30. Around 80% of the respondents have completed SPM and above (SPM - Sijil Pelajaran Malaysia or Malaysian Certificate of Education, is a national examination taken by all fifth-year secondary school students). The mean length of participation among respondents is 166.22 months or nearly 14 years, with a standard deviation of 50.84 months or 4.2 years. As per the economic loan (loan received for income generating activities), the mean economic loan received by respondents is around RM80000 with a standard deviation of RM61137. Findings show that around 70% of the total micro-enterprises owned and managed my micro-entrepreneurs were started more than 10 years ago. Findings from the regression analysis showed that total economic loan, enterprise development training, and startup motives have a significant effect on ‘micro-enterprise performance’. AIM should, therefore, focus on designing a flexible credit program, increase the loan size, develop specialized training programs, form an advisory board, and facilitate sharing experiences in order to improve the performance of micro-enterprises owned and managed by the low-income households in Malaysia.