Effectiveness of microcredit financing in enhancing well-being of micro enterprise entrepreneurs in Selangor, Malaysia

Poverty has been one of the pressing issues in developing countries like Malaysia. Microcredit institutions are effective tool for poor people can move out from poverty by improving their lives and giving them the provision of fund for their business. Amanah Ikhtiar Malaysia (AIM) was the first microcredit finance institution and one of the dominant players contributing to the poverty eradication in Malaysia by providing microcredit to the poor. Therefore, issues relating to the effectiveness of AIM on the well-being of AIM respondents need to be investigated. Thus, the objective of this study is to investigate the effectiveness of microcredit finance program on poverty eradication as experienced by the AIM micro enterprise entrepreneur in Selangor. Systematic random sampling was applied and sample 326 of respondents were interviewed by completing a structural questionnaire in AIM Selangor region. Six branches were approved to conduct the survey at their places in Selangor areas of Hulu Langat, Kuala Selangor, Barat Laut Selangor, Gombak, Selayang and Shah Alam and Klang. Descriptive analysis, chi-square analysis, factor analysis and multiple linear regression were used as a methodology to achieve the objective of the study. Majority of respondents agreed that AIM have improved their well-being by deriving benefits from income generating activities, although most of them still generate less than RM1,501-RM2,500 per month. The results also indicate that respondents who were married with secondary education, age between 41-50 and involved in food stall business were significant characteristics that contribute to the increase in income and well-being. Chi-Square analysis was employ to determine whether there is a significant association difference demographic profile and the characteristics of successful micro enterprises. The result of the chi-square analysis shows that most of the demographic profile such as family workers and hired workers have significant association with income-investment ratio from microenterprise. Exploratory Factor Analysis was used to explore the underlying factors that contributes to the effectiveness by microcredit financing. The 4 factors were identified as effectiveness in the microcredit program such as training and support, AIM and cooperation among respondents, role model, and AIM interest rate. The multiple linear regression was applied to determine the effects of microcredit on income and well-being of respondents. The result of multiple linear regression provided support by conceptual framework to explain income and well-being. The result indicated that, for the first model (Model 1), number of household, family workers and hired workers are influential and affect the income. The second model (Model 2) of regression, training and support, AIM and cooperation among respondents, AIM interest rate, age and household numbers are influential and affect the well-being. AIM plays an important role in meeting the financial needs of the respondents such as the provision of credits for enhancing their microenterprises and also serves as an effective tool for poverty eradication. Hence, AIM should find a way to increase income by improving the sustainability and growth. This is important as it has higher probabilities of improving family well-being and graduating AIM respondents above the poverty line income