International Journal of Business and Economics Volume 19, No. 1 June, 2020

Impact of Microcredit on SMEs Performance in Malaysia

Rafiatul Adlin Hj Mohd Ruslan

Islamic Finance and Finance Section, Business School, Universiti Kuala Lumpur, Malaysia

Christopher Gan

Agribusiness and Commerce, Department of Financial and Business Systems, Lincoln University, New Zealand

Baiding Hu

Agribusiness and Commerce, Department of Financial and Business Systems, Lincoln University, New Zealand

Nguyen Thi Thieu Quang

University of Economics, University of Danang, Vietnam

Abstract

This study investigates the relationship between access to microcredit and SMEs’ performance. Using survey data on SME's owners/managers in Terengganu, Malaysia in 2016, the study investigates how access to microcredit affects SME sales and employment growth. Employing the Propensity Score Matching method (PSM), the study showed that SMEs with microcredit borrowing had their sales 25.6% to 25.7% higher than non-microcredit borrowers. After minimizing the selection bias from both observable and unobservable characteristics using Differences in Differences method (DID), the difference was much larger (28.7%). However, both PSM and DID analyses revealed no impact of microcredit access on SME employment growth. The Endogenous Switching Regression method (ESR) confirmed these findings.

Keywords：Microcredit, Malaysia, SME performance, Propensity Score Matching, Endogenous Switching Regression.

JEL Classifications：L26, O53.

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