A comparative study on the practices of microcredit model in Malaysia

Abstract

Micorcredit has become a proven tool in against of poverty both in developed and developing economies. It has launched a challenge to the formal financial system with the hope of possibility of development to the poor group, who are a large part of the world's population. The formal microcredit institutions have been developed in Malaysia when Majlis Amanah Rakyat (MARA), council of trust to the Bumiputera and Credit Guarantee Corporation (CGC), introduced microfinance loans to its borrowers. Currently there are many government and non-government organizations (NGOs) also emerged in microfinance practices both in national and local level in Malaysia including Yayasan Usaha Maju operating in Sabah, Koperasi Kredit Rakyat in Selangor, Tabung Ekonomi Kumpulan Usaha Neaga (TEKUN), Credit Guarantee Corporation (CGC), National Savings Bank (BSN) and the significant one is Amanah Ikhtiar Malaysia (AIM). Moreover, few remarkable institutions which have been providing microcredit in the agriculture sectors are Agriculture Bank of Malaysia (BPM), Farmers Organisation Authority (LPP), Federal Land Development Authority (FELDA) and agro-based Co-operative Societies. Very recently several commercial banks, e.g. CIMB, also engaged in microcredit activities. This paper attempts to compare the practices of different types of model, and their efficiency, used by different microcredit providers in Malaysia with the standard models used by well-known international microcredit institutions.