Growth in demand for microfinance hampered by fear of debt
KUALA LUMPUR: The take-up of microcredit or microloans in the Greater Kuala Lumpur region has been low and “fear” is the key reason why micro entrepreneurs did not consider resorting to microcredit for their financing needs.
A new Asian Institute of Finance (AIF) study entitled “Microfinance in the Greater Kuala Lumpur Region – Outreach and Demand” revealed that while generally the experiences of microenterprises with loan applications and the services provided had not been bad and, they did not particularly distrust banks, many avoided taking loans for fear of being indebted (69.1%) and losing their collaterals (42.2%).
The survey was conducted in participation with a total of 547 microenterprises in selected towns and urban areas in the Greater Kuala Lumpur region.
Microfinance has become a crucial tool to promote financial inclusion and reduce poverty in Malaysia. The sustainability of microfinance depends on the lending institutions, or Microfinance Institutions (MFIs), being able to increase outreach and engage potential borrowers.
AIF CEO Dr Raymond Madden said poverty outreach and reduction is at the core of financial inclusion.
“To enhance the outreach of current microfinance programmes, MFIs need to redesign marketing strategies to overcome any concerns micro entrepreneurs might have for the microfinancing options on offer. Also the current low take up rate for Islamic microfinancing implies that there is potential to grow this sector,” he said in a statement.
MFIs can develop various strategies to enhance their outreach to create greater demand for microfinancing. Most importantly, they need to allay fears of being indebted among micro entrepreneurs. A strong knowledge of what encourages micro entrepreneurs to consider microfinancing programmes should enable MFIs to improve outreach.
MFIs must choose multiple communication channels to increase awareness of microfinancing and consider utilising technology as a way of enhancing outreach. As there is a significant increase in access to the internet, MFIs should be able to use social media to better market their products and services.