CURRENT SITUATION OF MICROFINANCE IN MALAYSIA AND ITS ISSUES
BY: ILIAS AHMAD
AGRICULTURE BANK OF MALAYSIA
Microfinance is nothing new in Malaysia. It has been operated by credit unions, co-operative banks and specialised credit windows of banks. Microfinance services of financial credit range for about RM10,000 (USD2,631) and mostly to finance small businesses, agricultural loans and loans for poverty reduction.
Majlis Amanah Rakyat (MARA), council of trust to the Bumiputera and Credit Guarantee Corporation (CGC) are some of the pioneers to introduce microfinance loans to its borrowers.
The rural credit institutions comprising of Agriculture Bank of Malaysia (BPM), Farmers Organisation Authority (LPP), Federal Land Development Authority (FELDA), and agro-based Co-operative Societies provide micro credit for the agriculture sectors.
There are a number of non-government organisations (NGOs) that engaged in microfinance. These include Yayasan Usaha Maju operating in Sabah, Koperasi Kredit Rakyat in Selangor and the best and significantly known microfinance institution (MFI) is Amanah Ikhtiar Malaysia (AIM).
Most recently, under the economic package announced by the Government on May 21, 2003 to generate economic activities by mobilising domestic sources of growth while reducing the country dependence on the external sector, Agriculture Bank of Malaysia (BPM) is given the allocation of RM500 million (USD 132 million) and National Savings Bank (BSN), the allocation of RM300 million (USD79 million) to carry out their respective micro credit programmes. The loan programmes aim of giving loans to individuals and small enterprises who do not qualify for existing bank products due to the lack of good collateral/guarantors. The loans are given based on the projects cashflow.
2. OVERVIEW OF MICROFINANCE
The meaning of microfinance with the narrower version refers to giving tiny loans to the hard core poor at subsidised interest rate (Grameen Bank, donation seeking non-profit organisation). A broader version has evolved with revolutionary approach
to development finance with the provision of financial services such as credit, savings, insurance, money transfer to poor and low income households and their micro-enterprises.
Microfinance around the world shows that poor people with little education are reliable borrowers. They will invest wisely and are willing to save if given the chance. Experience has shown that women are the best borrowers and are better at repaying their loans.
Microfinance was initially offered by different kind of institutions, informal and traditional systems, local and international NGOs funded by donors, cooperatives and credit unions, local government institutions, specialised financial institutions and ultimately by regulated, formal commercial financial institutions.
3. MICROFINANCE OF AIM
Amanah Ikhtiar Malaysia (AIM) was established in September 1987 to institutionalise an action research project carried out by the Centre for Policy Research of University Science Malaysia (USM), sponsored by the Asia and Pacific Development Centre (APDC), Islamic Economic Development Foundation of Malaysia (YPEIM) and the Selangor State Government. With some modification from the Grameen Bank model, the Ikhtiar Project was adopted as a programme to eradicate poverty of the rural poor in Malaysia.
AIM is governed by its Board of Trustee who will meet at least twice a year. A Management Committee will be responsible for its daily operation. The Management Committee, chaired by the Managing director shall meet at least once every quarter.
3.2 OBJECTIVES OF AIM
The objectives of AIM is to give out benevolent loans to finance income generating activities to the poor households and eventually move out from the poverty group. It is complementary to the Government objective in eradicating poverty amongst the poor households in Malaysia.
3.3 SOURCES OF FUNDS
AIM operational costs are borne through its administrative charges to its borrowers, state government, federal government, banks and financial institution and the private sectors.
Table 1: SOURCES OF OPERATIONAL COSTS &
REVOLVING LOAN CAPITAL
Category: Payday loans