IntroductionOne of the biggest pivotal roles in developing Malaysian economy isMicro-enterprises.
According to the economic census, Micro-enterprise inMalaysia is accountable for 77 percent of total Small and Medium Enterprises(SMEs), and 78.7 percent of the business establishments (Economic Census,2011). The graphical statistics of the census (2010) also indicates that Microand SMEs contribute about 65 percent of total employment in Malaysia(Department of Statistics, 2012).
In the year 2011, Census of Establishment andEnterprises revealed, nearly 19.7 percent of SMEs were women-owned businesses.By the size of establishment, about 87.9 percent the women-owned SMEs weremicro enterprises that are owner operator. Small-size establishment makes up11.3 percent and medium-size establishments account for 0.8 percent (Census,2011).
Simultaneously, the Malaysian government has embarked on more initiativesto establish, promote and nurture women entrepreneurs, to come forward andexplore businesses as an opportunity for employment and earnings, in line withthe Fourth Thrust of the National Key Result Area (NKRA, 2012).Data analyses show that Micro andsmall enterprises mainly depend on their own internally generated funds, andonly 16.2 percent of micro establishments indicated that they rely on financialinstitutions for financing” (Economic Census, 2011). It is obvious therefore;one of the major problems of operating these micro enterprises is obtainingcredit facilities, due to lack of significant laws and administrativeprocedures, limited access to institutional credit, imperfect marketinformation and seldom opportunities for skill development and low level ofR&D are stressed by literature (Saleh & Ndubisi, 2006; Shahinpoor, 2009; Nawai and Shariff, 2011; ZahidMahmood, Abbas &Fatima, 2017).
Interestingly, avery limited studies realized the importance of women participation in Islamicmicrofinance schemes, and its repercussion effect on their socio-economicdevelopment, which is the main gap this study attempts to address. Pastliterature state that women in developing countries do not have easy access tocredit for their entrepreneurial activity, although it was identified as the highestrate of women participation in the informal sector of the developing economy (Akanji2006; Iganiga, 2008). In fact, very limited studies in Malaysia, thus far havefocused on women entrepreneurs of micro-enterprises, exceptional being onestudy conducted by Haneef et al. (2013) in Kuala Selangor. Whereas, women playa pivoted role in generating income for their family, whilst upgrading theirsocio-economic standards. This directly and indirectly contributes toMalaysia’s GDP and overall to the nation’s economy. This study aims to evaluatethe elements that motivate participation in Islamic microfinance schemes bywomen entrepreneurs of micro-enterprises in Malaysia and its impact to theirsocio-economic changes.
The scope of the research addresses micro-enterprisesowned by women in urban as well as rural locations of Malaysia. Literature ReviewMicrofinance has evolved as an economicdevelopment approach intended as a provision of a broad range offinancial services such as savings, credit, insurance and payment services tothe poor or low-income group who are excluded from the normal bankingfacilities (Ledgerwood, 1999). It is a development approach that providesfinancial as well as social intermediation (Samer, Majid, Rizal, Muhamad& Rashid, 2015; Schmidt, 2010).Formal financial institutions restrain in providing financial servicesespecially credit, which is encouraged to evolve the micro-financing program (Wulandari& Kassim, 2016). Themicrofinance program was initiated with the objective to provide creditfacility to the poor people without collateral requirement (Hossain,2012).
Pischke (2002) arguedthat microfinance typically targets borrowers who do not have access to formalfinancial markets. Adequate Knowledge of Islamic Micro Finance (AKI)Prusak (1999)describes knowledge the important human factor in increasing the development ofsmall human trait or attribute, distinguishing it from businesses. It isbelieved that access to credit information is the only way human can obtainknowledge and act accordingly. De Long, Davenport and Beers (1997)claimed that knowledge is “information combined with experience, context, interpretation,and reflection.
” Ruggles (1997) carried the definition farther bydescribing it as an activity and “process of knowing.” The term activity bringsup the notion of action. Duffy (2001) describes knowledge as familiarity withfacts, which one may have learned through study, observation or personalexperience. The human can achieve or perceive knowledge while computers canonly have information. Polanyi (1958) asserts that knowledge is the full utilizationof information and data, coupled with the potential of people skills,competencies, ideas, intuition or investigations, whereas information is the knowledgethat is communicated.Islamic microfinance intends for economic growth and success ofsocio-political systems, based on the Islamic principles which include the sameprinciple of profit and loss sharing applied to trade, business, investing andmortgages (Hassan, 2014; Rahman, 2010; Saad & Anuar, 2009). A difference isfound in the lending mechanism of Islamic microfinance which differs from conventionalmicrofinance due to the prohibition of riba(interest).
Unlike conventional microfinance, Islamic microfinance offers aninterest-free way to give small loans to people who are poor and in need(Rozzani, Mohamed & Yusuf, 2016). Qard’l-hasan(benevolent loan) is an Islamic financial instrument, which is one of the keycomponents of extending loan, where the lender lends loan on a goodwill basisand the borrower is only required to pay the exact amount borrowed withoutadditional charges or interest (Kachkar, 2017). The Islamic principles clearlyencourage Muslims to provide qard’l-hasan,or benevolent loans, to “those who need them”.Islamic microfinance (IMF) mechanism isincreasingly popular, especially among the developing countries of the world foralleviating poverty (Rahman, 2010).
The Islamic banking and finance industry asa whole is anticipated to contribute US$ 2.5 trillion worth of assets by 2015(BNM, 2013). And it is a continually growing sector due to its ethicalprinciples and prohibition of ‘riba'(interest). Islamic microfinance totally follows the Islamic concept which is aform of socially responsible investment. Investors who use their wealth forIslamic microfinance projects only involve themselves in halal projects which benefit the community at large, and trade andindustry projects to develop a country’s economy.
With the concept of Islamic socialresponsible principles of caring, IMF enables not just with the solution tohelp poor but also provide them with microfinance enabling them to takefinancial access (Haneef et al., 2013). The present study therefore, examineswomen entrepreneurs’ knowledge of IMF schemes as a motivating factor towardsparticipation in Islamic microfinance. Based on the discussion, this studyproposes the following hypothesis.H1: There is a significantpositive relationship between adequate knowledge on Islamic micro finance andwomen entrepreneurs’ participation in Islamic microfinance. Easy Access to Credit Facility (EAC) Getting an easyaccess to credit facility is an important factor in increasing the developmentof small businesses (Nawai and Shariff, 2013). It is believed that access tocredit facilities actually allows the poor to overcome liquidity constraintsand invest more (AL-Sharafat, Qtaishat & Majdalawi, 2013). Brehanu and Fufa (2008) conducted amicrofinance study in Somalia and asserted that access to financial services bysmallholders is normally viewed as one of the barriers limiting their benefitsfrom credit facilities.
Similarly, Coyle (2006) identified accessingmicrofinance services as a key element for SMEs to succeed in building valuablecapabilities competent of creating employment and contributing to povertyalleviation in developing countries. The world data of microfinance shows that a small credit to the lendersmay help the micro-enterprises to grow further (Woller and Pearsons, 2002;Khandker, 2005). Hartarska and Nadalnyak (2007) indicated that the existence ofMicrofinance Institutions actually alleviated micro businesses’ financingconstraints. However, in order to achieve greater financial inclusion,development and sustainability of microfinance is equally important, ensuring alleconomic sectors, regions and communities across that must have access to afull range of financial products and service (Hossain, 1988; Mead &Liedholm, 1998; Shu-Teng, Zariyawati, Suraya-Hanim and Annuar, 2015). Therefore,Islamic microfinancing is the right way to provide an easy, faster andconvenient financing facility to micro entrepreneurs, specifically those ownedby women entrepreneurs, who are in need of financial aid to operate and sustaintheir businesses. There are numerous constraints to microenterprises developments. Salehand Ndubisi (2006), found that Malaysian SME faces constraints due to poor oftechnological capabilities, limited skilled human capital resources, and ICTpenetration. The study also identified the high level of bureaucracy ingovernment agencies and difficulty in obtaining funds from financialinstitutions and government as main obstacles faced by SMEs.
Among all the mostcritical has been lack of access to credit. In order to sustain the enterprise,working capital is crucial and to enable it to improve its performance. Infact, Leaman, Cook, and Stewart (1992), highlighted that development of a small-scaleenterprise is highly reliable on the accessibility to capital.
Based on thediscussion, this study proposes the following hypothesis.H2: There is a significantpositive relationship between easy access to credit facility and womenentrepreneurs’ participation in Islamic microfinance. Attitude (ATD)Attitude isdefined as the readiness to experiment and the motivation to take action towardobject classification in a predictable manner (Smith et al., 1956). Prentice(1987) asserted that attitude comprises cognitive, affective and behavioralfactors that are multidimensional. Ajzen and Fishbein (1977) described attitudeas the degree to which an individual assesses behaviour as favourable orunfavourable. In this regard, attitude reflects the impact of cognitive andaffective factors that lingers in one’s personal experience concerning theattitude, and also represents the willingness to respond accordingly (Ajzen& Dasgupta, 2015).
In the context of the present study, a motivatingattitude is described as the desire to develop the business or improve skills. Several studies were undertaken in Malaysia in regards to the economicimpact of microfinance programmes. The first study was an impact assessmentstudy conducted by Kasim in 1988. The main aim of his study was to evaluate theeffectiveness of Amanah Ikthiar Malaysia (AIM), in increasing, the householdincome of the poor, who were involved in the pilot phase of this programme. Thestudy found nearly 70 percent of the AIM members who were involved in thisstudy achieved a significant increase in their monthly household income, froman average of RM142 to RM220 per month (Kasim, 2000). In 1990, theSocio-Economic Research Unit (SERU) of the Malaysian Prime Ministers Departmentagain, conducted an impact assessment study on AIM microcredit programme (SERU,1991). SERU took samples from the poor employed in the rice and rubber sectorsin Kedah alone. The result revealed that the monthly household income of itsmembers increased more than doubled, from RM198 to RM457.
Interestingly, thisstudy was also able to uplift 249 poor households from poverty. In 2005, theinternal research conducted by AIM itself revealed that the AIM participantswere able to enjoy an increase in income of 186 percent; from RM326 to RM932per month after having received the loan from AIM.However, very limited studies were conducted in Islamic microfinancethus far, focusing specifically on women entrepreneurs. Islamic microfinance isrooted in a desire for economic growth and prosperity of socio-economicalsystems based on Shari’ah principles.
Karim et al. (2008) asserted that the demand for microfinance productsby the Muslims are based on Shari’ah compliantled to the emergence of Islamic microfinance as a new market niche. Theyargued, Islamic microfinance has the potential to expand financing to anexplosive level world-wide. Ahmed (2002) conducted a study to provide empiricalevidence from three Islamic microfinance institutions (IMFIs), in Bangladesh.The study found IMFIs appear to have performed even better than Grameen Bank,which is the largest conventional MFI operating in Bangladesh (Hossain, 2012).Based on the discussion, this study proposes the following hypothesis.H3: There is a positive relationshipbetween attitude and Islamic microfinance participation by women entrepreneursof microfinance. Influence of Friendsand Family (IFF)Sernovitz (2009)pointed out that people love to talk about products and services that they havebought and used.
Albarq (2014) and Thorsten, Kevin, Gianfranco, and Dwayne(2004) added that psychologically, consumers will not truly trustadvertisements by the producers themselves, but will rather trust people whorepeatedly talk about a product. Positiveword of mouth by friends and family members plays a crucially psychologicalrole in getting one to perceive differently any notion about a particular job,based on the experiences of others they trust. The influence of social grouppressures and expectations onto one’s intention depends whether to perform ornot that particular behaviour. Social groups consist of families, friends,colleagues and so on.
A research done by Alam and Sayuti(2011) found that support from social group members positively influences the persontowards performing or getting involved in some new activities. Thisis consistent with Karijin et al. (2007), in which their study also discoveredthe similar findings. On top of that, Affendi et al. (2014) found that there isa positive significant correlation between the influence offriends and family members and human intention in involving into something.This is perhaps Malaysia is a collectivistic society that people are expectedto conform to the social groups that they are belong to. Pertaining toinfluence of friends and family (IFF), Abd Aziz and Wahab (2013) also exposedthe similar findings that perceived behavioural control does have significantrelationship with individual’s intention. Based on the discussion, this studyproposes the following hypothesis.
H4: Thereis a significant positive relationship between the influence of friends andfamily and women entrepreneurs’ participation in Islamic microfinance. Theoretical FoundationThe gap identified in the literature review assert thatthere are factors which motivate IMF participation. These factors would beunique to the respective society, culture and economics of the countryunderstudy.
Hence, Gender and Development (GAD) Theory (Boserup, 1970) isidentified as the most appropriate theory to address the present research.Therefore, the theoretical framework of this research is derived from the GADtheory. The GAD theory advocates an emerging and innovative approach to addresswomen’s diversity within development programs while examining the powerrelations that disabled women from advancing. It is evident therefore financialaid for women owned micro-enterprises is vital. Firstly, because majority ofthe women owned SMEs are micro-enterprises.
But those micro-enterprises relymainly on their own internally generated funds for operating their businesses.Probably they may grow “big”, if they are given sufficient financial aid. Onthe other end, based on the above statistics it is obvious, there is a hugeuntapped market for IMF organisations to promote their micro financing schemesto the needy women entrepreneurs.
MethodologyThe population for this study were the women owners ofmicro-enterprises. The study was conducted in various regional branches ofAmanah Ikthiar Malaysia, located mainly in central and southern regions ofMalaysia. First, the list of women entrepreneurs operating micro-enterprises invarious branches was obtained from Amanah Ikthiar Malaysia’s main office inBandar Sri Damansara. Subsequently thequestionnaires were distributed to 20 AIM’s regional branches respectively,which agreed to participate in the survey.
In this research,one (1) industry experts and five (5) scholars in Islamic microfinance wereinterviewed to finalize the questionnaire items. It was than administered to 35samples of the study as a pilot study. The respondents were requested tocomment on the identified motivators whether these apply to them or not. Thequestionnaire was finalised based on the suggestions and were then distributedvia simple random sampling technique (Babbie,2010; Kothari, 2004) among 400 respondents, located in Centraland Southern regions of Peninsular Malaysia.
A total of 341 questionnaires were returned. After theinitial screening process, 12 questionnaires found incomplete with more than 15percent missing information, thus, excluded from the further process assuggested by Hair et al., 2016. Finally, a total of 329 questionnaires werefound valid for further analysis.