The Malaysian Microfinance System and a Comparison with the Grameen Bank (Bangladesh) and Bank Perkreditan Rakyat (BPR-Indonesia)

This paper compares the lending systems of subsidized Malaysian MFIs with those of unsubsidized MFIs such as Grameen Bank in Bangladesh and People's Bank (Bank Perkreditan Rakyat/BPR) in Indonesia. Malaysia has implemented microfinance programs since 1987 as a poverty eradication strategy. There are three large MFIs in Malaysia, namely Ikhtiar Malaysia (AIM), Yayasan Usaha Maju (YUM), and the Economic Fund for National Entrepreneurs Group (TEKUN). Each MFI has its own lending system and is subsidized by the government. Findings include:

• Malaysian MFIs offer limited microfinance products, and have standardized lending contracts as compared with Grameen Bank and BPR;
• Grameen Bank and BPR are unsubsidized MFIs, and offer a variety of microfinance products to generate revenue;
• Malaysian MFIs are fully subsidized by the government and lack the incentive to offer microfinance products other than microcredit loans;
• Grameen Bank and BPR offer products such as microinsurance and pension funds that provide important benefits to their clients.

The paper recommends that Malaysian MFIs should consider introducing microinsurance and pension funds to their borrowers, as well as emulate the flexible repayment systems of Grameen Bank and BPR.