Microfinance Institutions in Malaysia

Microfinance was introduced in Malaysia in 1987 to provide financial access to the poorest member of the society and to reduce the persisting income inequality. Poverty and inequality in Malaysia are characterised by the income disparity between urban–rural populations, gender, as well as among ethnic groups and states. This chapter gives an overview of three main Microfinance Institutions (MFIs) in Malaysia, namely Amanah Ikhtiar Malaysia (AIM), Yayasan Usaha Maju (YUM) and Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN). The three MFIs receive financial support from the Malaysian government but differ in the year of establishment, organisation type, lending schemes, service area coverage and target borrowers. MFIs differ in the performance of their loans’ repayment rate where the high Non-Performing Loans (NPL) can be associated with the loans’ lending terms as well as borrowers’ certain individual and household characteristics. MFIs’ microcredit loans positively affect borrowers’ individual, household and microenterprise economic performances but the magnitudes of the impact vary among MFIs and across economic performance measures. The implications of the presented findings and analysis are discussed, both for the MFIs and the policy makers.