Accessibility to microcredit by small and medium sized enterprises in Malaysia

Abstract

Small and medium sized enterprises (SMEs) play a critical role in Malaysia's economic growth by means of creating employment, income generation and stimulating growth. However, access to finance among SMEs lags behind large enterprises, which obstructed the growth and development of SMEs. The constraint of formal financial institutions in providing credit to low-income groups such as SMEs gave rise to microfinance programs. The Central Bank of Malaysia has designed micro financial institutions to provide a platform for SMEs to access microcredit. However, according to Department of Statistics Malaysia only 32.1% of SMEs obtained finance from the banks and microfinance institutions (MFIs) in 2016. Thus, access to microcredit remains the major challenge to most SMEs. However, access to microcredit among Malaysian SMEs is not well documented. This study investigates the determinations of Malaysian SMEs accessibility to microcredit. The study employs logistic regression to investigate the key determinants of accessibility to microcredit among SMEs in Malaysia. Factors influencing microcredit accessibility include married, ethnicity, financial training, household income, age of enterprise, ownership,networking with non-governmental organisations, networking with microfinance institution, networking with business associations and distance of the business premises to nearest microcredit provider. In addition, SMEs need to be proactive in seeking the opportunities to improve its microcredit accessibility.