A Study on Why Malaysian Commercial Banks Does Not Finance Micro Enterprise Companies
Azizi, Azhari (2014) A Study on Why Malaysian Commercial Banks Does Not Finance Micro Enterprise Companies. [Dissertation (University of Nottingham only)] (Unpublished)
The recently released 2011 SME census of Malaysia showed that majority of the businesses in the country; around 97 percent of the economy is classified under SME. Companies defined under Micro Enterprise (ME) represents around 77 percent of total SME businesses The Government of Malaysia views SME companies as an important driver of the country’s economy and launched a nationwide development plan to increase the contribution of SME in the country’s GDP to 41 percent and employment in this industry to 61 percent by year 2020. Despite the large numbers of ME companies in the economy, various studies has been conducted which reflects the difficulty of these companies of being granted credit facilities by Financial Institution (FI). This paper was created to investigate the reasons of why FIs are not willing to finance ME companies despite majority of companies in the economy is defined under ME. The study will look into the current credit evaluation process of FIs and looks into how to improve the credit evaluation process of FIs for evaluating ME companies. A survey was conducted and I have managed to receive around 31 percent response rate from different types of financial institution from the 98 surveys sent out. Results of the survey shows that only one third of the FIs where respondents work for finances credit proposition for ME companies with some of the results from the survey tied-in with some of the earlier studies conducted on credit evaluation of ME companies. The results of the survey highlights the importance of quantitative information such as repayment ability of borrowers, track record with credit bureaus and financial performance of the borrower in the credit evaluation process, which most ME finds lacking of due to the limited experience of the owners of the business and small access to capital. A recommendation for FIs to operate a subsidiary unit similar to an MFI was proposed, to address the requirements of FIs to adhere to various rules and regulations to fulfill to maintain their license as an FI which I hope will encourage more FIs to develop ME companies.
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