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Microfinance is nothing new in Malaysia. It has been operated by credit unions, co-operative banks and specialised credit windows of banks.  Microfinance services of financial credit range for about RM10,000 (USD2,631) and mostly to finance small businesses, agricultural loans and loans for poverty reduction.

Majlis Amanah Rakyat (MARA), council of trust to the Bumiputera and Credit Guarantee Corporation (CGC) are some of the pioneers to introduce microfinance loans to its borrowers.

The rural credit institutions comprising of Agriculture Bank of Malaysia (BPM), Farmers Organisation Authority (LPP), Federal Land Development Authority (FELDA), and agro-based Co-operative Societies provide micro credit for the agriculture sectors.

There are a number of non-government organisations (NGOs) that engaged in microfinance. These include Yayasan Usaha Maju operating in Sabah, Koperasi Kredit Rakyat in Selangor and the best and significantly known microfinance institution (MFI) is Amanah Ikhtiar Malaysia (AIM).

Most recently, under the economic package announced by the Government on May 21, 2003 to generate economic activities by mobilising domestic sources of growth while reducing the country dependence on the external sector, Agriculture Bank of Malaysia (BPM) is given the allocation of RM500 million (USD 132 million) and National Savings Bank (BSN), the allocation of RM300 million (USD79 million) to carry out their respective micro credit programmes. The loan programmes aim of giving loans to individuals and small enterprises who do not qualify for existing bank products due to the lack of good collateral/guarantors.  The loans are given based on the projects cashflow.



The meaning of microfinance with the narrower version refers to giving tiny loans to the hard core poor at subsidised interest rate (Grameen Bank, donation seeking non-profit organisation). A broader version has evolved with revolutionary approach to development finance with the provision of financial services such as credit, savings, insurance, money transfer to poor and low income households and their micro-enterprises.

Microfinance around the world shows that poor people with little education are reliable borrowers. They will invest wisely and are willing to save if given the chance.  Experience has shown that women are the best borrowers and are better at repaying their loans.

Microfinance was initially offered by different kind of institutions, informal and traditional systems, local and international NGOs funded by donors, cooperatives and credit unions, local government institutions, specialised financial institutions and ultimately by regulated, formal commercial financial institutions.



3.1    AIM

Amanah Ikhtiar Malaysia (AIM) was established in September 1987 to institutionalise an action research project carried out by the Centre for Policy Research of University Science Malaysia (USM), sponsored by the Asia and Pacific Development Centre (APDC), Islamic Economic Development Foundation of Malaysia (YPEIM) and the Selangor State Government. With some modification from the Grameen Bank model, the Ikhtiar Project was adopted as a programme to eradicate poverty of the rural poor in Malaysia.

AIM is governed by its Board of Trustee who will meet at least twice a year. A Management Committee will be responsible for its daily operation.  The Management Committee, chaired by the Managing director shall meet at least once every quarter.



The objectives of AIM is to give out benevolent loans to finance income generating activities to the poor households and eventually move out from the poverty group. It is complementary to the Government objective in eradicating poverty amongst the poor households in Malaysia.



AIM operational costs are borne through its administrative charges to its borrowers, state government, federal government, banks and financial institution and the private sectors.






Government-free interest loan

RM300.0 million (USD78.9 M)


RM18.2 million (USD4.9 M)

Financial institutions – soft loan

RM28.05 million (USD7.4 M)

Government Agencies


LKIM – free interest loan

RM4.0 million (USD1.05 M)

Rural Development Ministry - grant

RM12.8 million (USD3.4 M)

Grants for Operational Costs


Federal and States Government

RM30.0 million (USD7.9 M)



The concept of AIM is to create out of the hardcore poor households, highly motivated individuals who are committed to earn an honest living and eventually move out of the poverty level.

The strategies are by giving out to borrowers interest free loans to undertake income generating projects. The loans are to be repaid on a weekly basis.  Once fully paid, bigger loans are being offered. This process goes on as the need arises. The first loan is normally restricted to RM1,000 (USD263) up to a maximum of RM4,000 (USD1,289) for successive loan. Successful borrowers could apply for a much bigger loans of RM5,000 (USD1,315) or even up to RM10,000 (USD2,2631).

Following the model of the Grameen Bank, poor borrowers formed themselves into groups of five who in turn guaranteed each others loans. These households will undergo a one week compulsory training of one hour per day to understand their rights and obligations in order to ensure good repayment.


Currently AIM offers the following loan products to its members:

(i)    Ikhtiar Loan Scheme 1 (Skim Pembiayaan Ikhtiar 1 – SPI 1)

SPI 1 provides loans to poor households with average monthly income of not more than RM340 (USD89) or two third of poverty line income.  Initial loans are up for a maximum of RM1,000 (USD263), increasing to RM2,000 (USD526), RM3,000 (USD789), RM4,000 (USD1,052) and RM4,900 (USD1,289).  The loan repayment period is between 50 weeks to 100 weeks.

(ii)    Ikhtiar Loan Scheme 2 (Skim pembiayaan Ikhtiar 2 – SPI 2)

SPI 2 loan scheme provides loans between RM5,000 (USD1,315) to RM9,900 (USD2,605) to borrowers who have made good repayment from the previous two loans and having a monthly income exceeding RM600 (USD158). The repayment period of the loan is between 50 to 150 weeks.

(iii)    Ikhtiar Loan Scheme 3 (Skim Pembiyaan Ikhtiar 3 – SPI 3)

SPI 3 provides loans up to RM10,000 (USD2,631) to borrowers with good track recor with perfect repayment for at least 2 times (SPI 1) or SPI 2 and having a monthly income exceeding RM1,000 (USD263).  The loan could be repaid up to a maximum period of 150 weeks.

(iv)    Single Mother Loan Scheme (Skim Ibu Tunggal - SKIT)

SKIT provides loans to single mothers living in town areas.  The aims of the scheme are to increase the living standard of single mothers and motivate them to undertake stable economic activities to support the family.  Eligibility for the loans depends on the household earnings and varies within states.  Household earnings for those living in Kuala Lumpur and Johore must not exceed RM1,200 (USD315); Selangor, Malacca and Negeri Sembilan RM800 (USD210) per month; Kelantan, Terengganu and Kedah RM425 (USD111) per month; and Perak RM600 (USD157) per month.

In addition, special Education loan Scheme up to RM1,000 (USD263) with maximum loan period up to 50 weeks, and special housing Loan Scheme up to RM5,000 (USD1,315) with maximum repayment period up to 100 weeks are available to borrowers with good repayment record. As at August 2003, AIM has an outstanding loans balance of about RM130 million (USD 34.2 million).  From its inception in 1987, the loan programmes have benefitted more than 120,000 members. The existing members now stands at about 89,000. Based on the figures of 150,000 (two-third) of poor households targeted by AIM, it has successfully made an outreach of about 80 percent in term of the number of poor households it has targeted in Malaysia.


(i)    Exclusive Focus on The Very Poor

AIM uses special means test to identify eligibility of its potential clients.  It is based on conditions of the house and monthly households income of not more than USD66 (1986-1994), USD75 (1995-2000) and USD90 (2001).  Priority of AIM loans will be given to the poorest among the poor.

(ii)    Specialised Delivery System

AIM has set up requirements to ensure that the poor has access to the credit programmes. These requirements are:

(a)    Suitable loan condition (no collateral, no guarantor and no legal action)

(b)    Credit is taken to the very poor, to their village

(c)    Simple procedures, compulsory group training and oral test on understanding of rules and regulations

(d)    Formation of groups by potential members (five members in a group, equal socio-economic status, create right peer pressure and peer support)

(e)    Collective responsibility, group and centre accept collective responsibility

(f)    Small loan and weekly repayment

(g)    Loan for income generation

(h)    Close supervision by field staff in centre meeting and loan monitoring

(i)    Availability of subsequent loan

(j)    Open conduct of all business at centre meeting.


(iii)    Rigorous Practical Staff Training

Efficient and effective operational staff are required to deliver a well done job.  Rigorous and practical training are conducted with a basic training for six months and a probation period of 12 months.  The training period is divided into three phases and trainees must pass each phase before being offered as AIM probation staff.  All staff must have good understanding of AIM rules and procedures.


(iv)    Supportive National Policy Framework

AIM has the support from the federal government and also from the state government.  Grants and soft loans are given to support its operational and administrative costs.  AIM also has close linkages with government agencies and they have been supporting its branches and regional offices by organising together programmes and workshops for its members and their families.



(i)    Disbursement

Table 2:  NUMBERS AND AMOUNT FINANCE (1998-2002)













Amount (RM)






Sahabat Members






The number of loans being disbursed ranges from RM102.6 million in 1998, decreasing to RM82.9 million in 1999 and with an upward trend up to 2002 amounted to RM140.7 million.  Sahabat members increased nearly double from 1998 to 2002. From its inception, AIM has a cumulative disbursement of more than RM800.0 million (USD210.5 million) loans to its members.


(ii)    Collection

AIM still has an overall good collection rate of about 96% (2001: 96.5%, 2002: 95.5%, August 2003: 95.3%) from its loan programmes.  The set-back was due to the Single Mother Loan Scheme (SKIT) which contribute to its poor performance of collection of about 36% and also from fisherman Loan Scheme.

(iii)    Loans Arrears

As at August 2003 AIM has a cumulative loans arrears of about RM13.8 million (USD3.6 million) which contributed to about 9.4% from its total loans of about RM146.2 million (USD38.5 million).



BPM has launched its Micro Credit Scheme (Pembiayaan Kredit Mikro) on the 3rd June 2003 after the announcement of the economic package by the Prime Minister on 21 May 2003.  The scheme starts with an initial capital injection of RM200 million from the government and will be increased to RM500 million when the fund for the scheme has been finally raised.

The scheme is offered to small entrepreneurs in agriculture related projects in production, processing and marketing.  Loan size is up to a maximum of RM20,000 (USD5,263) with an interest rate of 4% per annum and loan period of not more than 4 years.  The applications from the public is very encouraging.  Up to October 2003, RM188.6 million (USD49.6 million) has been disbursed to the borrowers with a loan balance of RM174.1 million (USD45.8 million).  It is still early to measure the performance of the scheme, although the collection rate that has been achieved to date is about 92%.

5.    ISSUES

For AIM;

(i)    AIM still depends on the support from the government and related agencies for funding.  With a fixed administrative charge of 4%, it does not cover its operating costs and could not be sustainable and self-dependent.

(ii)    John D. Conroy (2002) commented on his articles that AIM should relooked back from its fundamental principles because of the loss of direction not focusing on the not so poor or non poor and giving larger loans and better-off borrowers. With the recent management shakeout it is hopeful AIM will be succeeded by a period of stability and recovery.

(iii)    As the number of poor households decreases, due to various government’s effort to reduce the poverty level to 0.5 percent in 2005, the outreach to new members will be scarced.  Potential expansion of growth would be in the state of Sabah and Sarawak which have shown a higher poverty level.


For BPM;

(i)    The extension of loans with low interest rate (4%) will become an issue if the fund is not supported by grant or soft loan from the government.  If BPM has to outsource its funding from the market, the government should be willing to come out with the differential margin for BPM to extend loans with low interest rate.

(ii)    Implementation of micro credit will put more burden in term of operational costs to BPM.  The scheme will increase credit risks due to its relax condition of no collateral/guarantors.



The official policy of subsidising of microfinance was appropriate in circumstances of Malaysia.  It would still be appropriate given the relatively small number of hardcore poor and the poor outside the financial sector getting access to credit and financial services.  AIM has made a great success in reaching the poorest of the poor complementary to the government effort to eradicate poverty. For BPM its too early to make any judgement from the micro credit scheme that has been launched.

The future of microfinance institutions in Malaysia to survive will depend on whether they could be sustainable and dependent. It would be possible for microfinance institutions in Malaysia becoming financially sustainable if they could improve their administrative and operational capacity, increase the availability of capital on-lending and extending loans with competitive market rate.



1.    Conroy,J.D. 2002. Microfinance in Malaysia: Time to rebuild

2.    Gibbons,D.S and J.W. Meehan. 2002. Financing Microfinance for Poverty Reduction.

3.    Siwar,Chamhuri. 1996. Microfinance Capacity Assessment Study. The Malaysian Case. Asian Pacific Development Centre, Kuala Lumpur

4.    ADB.2000a. Finance for The poor: Microfinance Development Strategy. Manila: Asian Development Bank.