Human capital, credit, and startup motives: A study among rural micro-enterprises in Malaysia

To minimize poverty and inequality, Amanah Ikhtiar Malaysia (AIM) has been providing
assistance for the development and growth of micro-enterprises. AIM was established in 1987, to
provide small-scaled financial services and training to poor households in order to improve their
socio-economic conditions. AIM also provides a wide range of training to the poor and hardcore
poor borrowers, in order to improve their ability to find new income generating activities, select
appropriate income generating activities, use the loan suitably, and to improve their money
management skills. In order to reevaluate and elucidate ‘what and where’ to focus while
redesigning AIM’s credit and training programs, this action research project was initiated to
examine the role of human capital, credit, and startup motives in micro-enterprise performance.
This study employed a cross-sectional design and a quantitative approach. This study also adopted
the group statistics that have been most often used known as the ‘average effect of treatment of
treated’, which measures the impact on the micro-enterprise performance. A list of 601 most
successful borrowers and micro-entrepreneurs was provided by AIM. The borrowers were selected
based on length of participation (more than five years) and average monthly income from microenterprise
(≥ RM5000). Out of 601 borrowers, complete data was collected from 407 most
successful micro-entrepreneurs of AIM. A structured interview method was adopted; all data were
collected through face-to-face interviews. After the data was collected, it was analyzed and
summarized in an easy-to-understand format for interpretations and tabulations. Analysis starts
with descriptive analysis, followed by factor analysis, reliability analysis, correlation analysis, and
regression analysis. The ages of 72% of the selected successful micro-entrepreneurs from AIM are
above 41. Only 2% of the respondents are below 30. Around 80% of the respondents have
completed SPM and above (SPM - Sijil Pelajaran Malaysia or Malaysian Certificate of Education,
is a national examination taken by all fifth-year secondary school students). The mean length of
participation among respondents is 166.22 months or nearly 14 years, with a standard deviation of
50.84 months or 4.2 years. As per the economic loan (loan received for income generating
activities), the mean economic loan received by respondents is around RM80000 with a standard
deviation of RM61137. Findings show that around 70% of the total micro-enterprises owned and
managed my micro-entrepreneurs were started more than 10 years ago. Findings from the
regression analysis showed that total economic loan, enterprise development training, and startup
motives have a significant effect on ‘micro-enterprise performance’. AIM should, therefore, focus
on designing a flexible credit program, increase the loan size, develop specialized training
programs, form an advisory board, and facilitate sharing experiences in order to improve the
performance of micro-enterprises owned and managed by the low-income households in Malaysia.