MALAYSIAN ECONOMIC DEVELOPMENT Issues ... - Har Wai Mun

MALAYSIAN ECONOMICS DEVELOPMENT
subsidies and progress towards financial sustainability for AIM, it does raise an important issue
in the particular circumstances of Malaysia. An earlier discussion of funding policy set in a
comparative context (McGuire, Conroy & Thapa, 1998) made the judgment that the then official
policy of subsidizing microfinance was appropriate in the circumstances of Malaysia. It would
still be appropriate to do so now, given the relatively small numbers of the hardcore poor and the
relative prosperity of Malaysia, provided that AIM settles on an objective set of targeting
principles without hint of political considerations and concentrates on running a lean and cost
effective operation. At the end of 1998 AIM had 40 branches and 6 Area offices serving some
39,000 borrowers and almost 56,000 members. The evaluation refers to the need for 'a major and
expensive rehabilitation exercise'. The more recent trends in portfolio at risk appear to underline
the correctness of this judgment.
Inefficiency of Microfinance in Malaysia
In East Malaysia's Sabah state, for example, the Yayasan Usaha Maju microfinance program
grew too fast. Last year, the program lent out some $10.7 million in loans to 12,732 borrowers.
But interest income on those loans was only $115,000 and operating costs were over $1.2
million. The program is now faced with cutting the number of branch offices by half. As
mentioned above, AIM has increasingly focused on providing larger-sized and higher-interest
loans and serving non-'hard core poor'. Two loan programs introduced after 1997 illustratedthis
point. The first was given the name 'SPIN'. The SPIN program targeted men in the fishing
industry. The second was titled SP-IT, for 'Single Mothers' (female heads of households).
Participants were offered an unprecedentedly high first loan of RM10,000 (US$ 2,650). With the
diversion of AIM's attention to larger loans and better-off borrowers, the evaluator was also
concerned about the implications of this development for credit discipline and portfolio quality
with SPIN at 60 per cent PAR and SP-IT at 36 per cent. These are levels which indicate grave
problems for the AIM program.
Very clear that the problem face by Malaysia microfinance is the microfinance objective is to
borrow out money to the poor or to develop the undevelopment industry but because of the fear
of bad debt so microfinance bank will increase the requirement of borrowing so at the end this is
will lead the bank to away from their objective. So microfinance have to headache of how to
have a balance between their objective and profit.
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