Micro-financing in Malaysia:
Helping the poor
Amanah Ikhtiar Malaysia
Imagine
Malaysia
Income Distribution by Ethnicity (1970)(as a percentage of total households)
Income range (mo.) Malay Chinese Indian Other
RM 1-100 22.9 2.6 1.3 .2
RM 100-199 19.1 7.8 4.4 .1
RM 200-399 10.4 11.9 3.5 .1
RM 400-699 3.0 5.3 1.2 .1
RM 700 and above 1.3 3.7 .8 .3
total 56.7 31.3 11.2 .8
Incidence of Poverty in Peninsular Malaysia1970 1980 1990 1995 2000
Households below poverty line
49.4 33.8 15.0 9.1 5.5
Agenda
• About Amanah Ikhtiar Malaysia (AIM)
• Why AIM is the best fit for Malaysia
• Critical evaluation of organization
• Recommendations going forward
AIM’s Objective AIM attempts to alleviate poverty by providing
micro-loans to poor households. These loans allow individuals to undertake activities in order to enhance their economic prosperity.
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
AIM’s Strategy
• Loan to 5 individuals of the same gender• Loans range in size from RM2,000 to
RM20,000 (about $500 to $5,000)• Repaid within 25 to 150 weeks• Range allows to tailored loan plans
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
AIM’s Strategy
•Target Market Rural areas Women Malay
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
Operational Effectiveness of AIM
Government 60%
Malaysian Islamic Economics Founda-
tion30%
Other Foundations10%
AIM Funding Sources
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
Operational Effectiveness of AIM
• Strict Screening of EligibilityGovernment Poverty LineTraining and Oral Exam
• Communications
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
Communication Channels
Village gatherings
In schools
Volunteers
Newspapers
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
Greater equality in wealth distribution
Appropriate for Malaysia’s middle-income classification, i.e. huge income gap
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
Bumiputera Chinese Indians Others Non-citizens
62%
24%
7%1%
6%
Malaysia's ethnic composi-tion in 2003
Striving for national unity despite racial tensions
Rural Bumiputera entrepreneurs
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
1. Reduction/eradication of poverty
2. Accelerate the process of restructuring Malaysian society to correct economic imbalance
AIM can follow NEP 2-prong strategy
AIM fosters sustainability
•Provides the best possible option for each person by individualizing loan plans
•Identifies pool of individuals that benefit the most from AIM’s services through screening and training
•Instills commitment and work ethic
•Eliminates dependence on funds by setting a maximum tenure
•Distributes wealth among large rural populations which in turn become self-sufficient
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
Rice Agriculture
Decreases agricultural dependence
Economic Trade
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
Malaysia Successfully Decreases Agricultural Dependency
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
60% of AIM’s funding comes from the government
Corruption• Managing director jailed• Political leader charged for misleading Indians
Improvements to board:1. More knowledgeable board-members2. Politically neutral experts3. More involvement of women
Critical Issues
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
AIM lacks metrics to measure operational effectiveness
One Standard of Reporting
Cost-Efficiency
Social Return on
Investment
Financial Sustainability
Apply Acumen Fund Metrics Framework
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
III. Operational
II. Financial
I. Social Impact
SROI% change in poverty reductionComposition of borrower base (e.g. Bumiputera, women)
Portfolio-at-risk ratioPayback ratiosAverage loan sizeSolvency ratios
Cost savings measures Reducing time to process loan applications, streamline process
Metrics Guidelines
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
Can AIM forge a partnership or become an independent bank to add value?
Hurdles to overcome
Lack of metrics
Interest rate spread
“Mission drift”
Bureaucracy
What is AIM? Why is AIM best for Malaysia? Evaluation of AIM
1987At its inception, AIM model a good fit
for the contemporary environment
Demographic
EconomicTechnological
PoliticalSociocultural
•Hardcore poor mostly Bumiputera•Poverty concentrated in rural areas where Bumiputera reside
•Infrastructure still developing•Requires more tools to compete on a global scale in a variety of different industries
•New Economic Policy, government efforts to reduce poverty•Bureacracy and divided Northern and Eastern regions
•Pre-urban exodus, rural families•Power Distance Index on the rise as Malaysia becomes industrialized
•Economy heavily dependent on mining/agriculture•GDP – $31.6 billion
1949 1959 1969 1979 1989 1999 2009 2019 20290%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Malaysia: An Exodus to Urban Environments
Year
% U
prba
n Po
pula
tion
Two Decades of Malaysian Urban Evolution
+60%
2007AIM goes astray, overwhelmed by changing environment
Demographic
EconomicTechnological
PoliticalSociocultural
•Not-so-poor and non-poor individuals seeking loans•Men begin seeking loans•Poor gravitate toward urban regions
•Technological advances make it possible for Malaysia to export more goods and shed its dependence on agriculture
•Corruption, bureaucracy slows cash flows to AIM•Politically divided Eastern and Northern states
•Men control many government positions as well as board positions at AIM•Power Distance Index exceptionally high
•Economy shifts to trade, led by mass immigration to urban areas•Oil, rubber, electronics (manufacturing) become major exports•GDP - $138 billion
QUESTIONS?