Challenges for Sustainable Islamic Microfinance Institutions in Malaysia

Abdullah, Dr. Md Faruk and Mahmood, Dr. Suraya and Shamsuddin, Dr. Zelhuda (2019) Challenges for Sustainable Islamic Microfinance Institutions in Malaysia. In: Islamic Development Management. Springer, Singapore, pp. 127-140. ISBN 978-981-13-7584-2

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Abstract

This paper aims at investigating the operation of Islamic microfinance in Malaysia, analyses the challenges for their sustainability and the possible solutions. Among the notable institutions offering Islamic microfinance in Malaysia are Amanah Ikhtiyar Malaysia (AIM), Yayasan Usaha Maju (YUM) and Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN). Banking institutions and development financial institutions are also a major provider of financing to small and medium size enterprises in Malaysia. It was found out that most of the microfinance institution in Malaysia depend on a single Islamic mode of financing, which is qard hasan and charge a fee for the services other than the loans and there is no integration of zakat and waqf with the microfinance operation. On the other hand, commonly the risk management tools, training and marketing strategies have some shortcoming which might be a threat for their sustainability. Furthermore, the dominance of mainstream banking institution and development financial institutions in providing microfinance may not always be right as they have some limitations. Similarlry, operating under the government might not be a positive approach for the microfinance institutions concerning their efficiency and political influence.

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