Faizan Arif

Source of micro financing

Micro financing can come from a variety of sources. Some common sources include:

Microfinance institutions (MFIs): These are specialized financial organizations that provide small loans,
savings accounts, and other financial services to low-income individuals and small businesses.

Banks: Some traditional banks have started offering microfinance services, often through specialized
departments or subsidiaries.

Non-governmental organizations (NGOs): Some NGOs provide micro financing as part of their
development programs.

Government programs: Some governments have established programs to provide micro financing to
support small businesses and entrepreneurship.

Crowdfunding: Online platforms that allow individuals to pool their funds to support small businesses or
projects can also be a source of micro financing.

Investors: Individual investors or investment funds may provide micro financing to small businesses in
exchange for a share of ownership or future profits.

Disadvantage of micro financing

There are several disadvantages of micro financing, including:

High interest rates: Micro financing interest rates can be higher than those of traditional loans, which
can put a strain on the cash flow of small businesses and make it more difficult to repay the loan.

Short repayment periods: Micro financing loans often have shorter repayment periods than traditional
loans, which can make it difficult for small businesses to manage their cash flow.
Limited loan amounts: Micro financing loans are typically smaller than traditional loans, which can limit
the growth potential of small businesses.

Lack of collateral: Many micro enterprises do not have assets that can be used as collateral for a loan,
which can make it difficult to obtain financing.

Inadequate financial education: Many micro enterprise owners do not have a strong understanding of
financial management and may struggle to manage the financial aspects of their business.

Limited access to other financial services: Microfinance institutions may not offer a full range of financial
services, such as savings accounts, insurance, and investment options, which can limit the financial
options available to small businesses.

Criticism:

Micro financing has faced criticism for a number of reasons, including:

High interest rates: Some critics argue that micro financing interest rates can be exploitative and take
advantage of the desperation of poor individuals and small businesses.

Debt trap: Critics argue that micro financing can trap low-income individuals and small businesses in a
cycle of debt, as they are unable to repay the loans and are forced to take out new loans to repay the
old ones.

Lack of sustainability: Critics argue that many micro enterprises are not economically sustainable and
that the loans provided through micro financing are not sufficient to support long-term business growth
and success.

Insufficient impact on poverty reduction: Critics argue that micro financing has not lived up to its
potential to reduce poverty and improve economic conditions for low-income individuals and small
businesses.

For-profit focus: Some critics argue that microfinance institutions are focused on generating profits for
investors and shareholders, rather than on improving the lives of their clients
Article discussion:
Does The Micro Financing Term Dictate The
Performance Of Micro Enterprises?
2. Problem Statement
With regard to the above issues, no study has been conducted to develop a framework regarding the
financing terms and micro enterprise performance. Therefore, this paper targets to explore the effect of
financial terms towards the micro enterprise performance and to identify whether those financial terms
have a significant impact to the return on Investment of micro enterprise.
3. Research Questions
a) Does tenure positively relate to the return on investment in micro enterprise?
b) Does collateral negatively relate to the return on investment in micro enterprise?
c) Does the interest rate of financing positively relate to the return on investment in micro enterprise?
d) Does mode of payment positively relate to the return on investment in micro enterprise?
4. Research Objectives
This paper is focusing on the main elements that will be looked into both internally and externally.
Specifically, this research has the following objectives:
a) To identify the relationship between tenure of financing and return on Investment for micro
enterprise performance
b) To examine the relationship between collateral of financing and return on Investment for micro
enterprise performance

c) To explore the relationship between interest rate of financing and return on Investment for micro
enterprise performance

d) To discover the relationship between repayment method of financing and return on Investment for
micro enterprise performance

Introductions:

The Malaysian government is strongly committed and is actively promoting micro financing as one of
the strategies in developing the young entrepreneurs.Most micro-entrepreneurs will initially not be able
to finance the start-up costs of their micro-enterprises out of their own pockets.Microcredit, in its
simplest form, involves granting individuals who have lack of money access to capital in the form of
uncollateralized small (micro) loans designed to be repaid with interest.The tenure of the given loan is
an important determinant to the micro enterprise performance and their growth performance.The
government encourages more financial institutions to offer micro financing or micro credit scheme to
aid businesses at every level, including entrepreneurs from lower income groups.

Conclusion:

The study’s objective can be reached through the existence of micro financing offered by several
authority bodies in Malaysia like Permodalan Nasional Berhad (PNB), SME bank or commercial banks in
various sectors. By looking at the four important elements that have been discussed earlier, this service
was able to show the impact on micro franchising schemes in terms of financial services offered by
financial institution. Micro financing is the one solution for micro franchisees; it provides access to
capital while micro franchisees provide turnkey opportunity to business. Through the findings, these
four elements have their own significance in the performance of micro enterprise, of which, tenure and
collateral have a negative relationship with Return on Investment.The continuous study about this issue
can improve the performance of micro enterprises especially in return on investment. Lastly, this study
uncovers the impact of micro financing or micro credit towards the micro enterprise systems in the
context of financial services.

Hi.The length of time for which a loan is taken out, also known as the loan tenure, can have an impact
on the return on investment (ROI) for micro enterprises. If the loan tenure is too long, it can result in
increased interest payments, reducing the ROI for the enterprise. On the other hand, a shorter loan
tenure may result in higher monthly payments, which can also negatively affect the ROI. It is important
for micro enterprises to carefully consider the loan tenure when evaluating the potential impact on their
ROI.

H2The use of collateral by micro enterprises can negatively impact their return on investment. This is
because pledging collateral can increase the cost of borrowing, as lenders may demand higher interest
rates or fees to compensate for the added risk. In addition, if the enterprise is unable to repay the loan,
the lender can seize the collateral, which can lead to a loss of assets and further harm the micro
enterprise's financial situation. This can decrease the overall return on investment for the micro
enterprise and its stakeholders.

H3 The interest rate charged by financial institutions to micro enterprises can affect their return on
investment (ROI) in a positive manner. A higher interest rate may incentivize micro enterprises to invest
in more profitable projects, leading to a higher ROI. However, it's important to note that the relationship
between interest rate and ROI is complex and depends on various factors, such as the overall economy,
competition, and the risk associated with the investment.

H4 Yes, an effective repayment method can positively impact the return on investment for micro
enterprises by increasing the financial stability and credibility of the business, which in turn can attract
more investment and improve future financial performance. Having a reliable repayment plan can also
help build trust with lenders, making it easier for the micro enterprise to access funding in the future.
Expected Outcomes
The outcomes of this study are to contribute to the limited research on the financial of return
on investment in micro enterprise. Furthermore, the can be used by financial institutions and related
agencies to restructure their micro credit products in order to help the micro enterprises sustain in their
business. Lastly, results from this study will assist the government to enhance the entrepreneurship
financing programme, particularly in financing scheme.