url
16
Jun
2014

THE IMPORTANCE OF MONITORING AND ENTREPRENEURSHIP CONCEPT AS FUTURE DIRECTION OF MICROFINANCE: LITERATURE REVIEW

THE IMPORTANCE OF MONITORING AND ENTREPRENEURSHIP CONCEPT AS FUTURE DIRECTION OF MICROFINANCE: LITERATURE REVIEWEntrepreneurial approach is also very important to the poor and hard-core poor asnafs because reaching for micro business such as capital support from the distribution of zakat enables them to transform entrepreneurial ideas into reality through micro enterprises. The capacity to generate business profits through the entrepreneurial concept enables the status of an asnaf that receives support (zakat) to that of a person that actually pays the zakat. This concept is in-line with the approach introduced by Lloyd-Ellis and Bernhardt whereby, the higher is one’s entrepreneurship level the less would be his dependence on business capital funding facilities. This finding is in support with that of another study by Paulson dan Townsend which found that the higher the level of profit and wealth being created the less would be the dependence on micro funding. Hence, this cycle would be able to support the expansion of Islamic economic and its ummah.

Table 1 show the strong commitment from Malaysian Government in developing entrepreneurial activities in the country through the distribution of various capital funding’s, especially micro finance programs under AIM and TEKUN. Table 2 shows the amount of capital funding’s that the Malaysian Government provides through YBK to enhance the enterprise development process among the poor community. Unfortunately, Morduch through his research on poor housewives in Bangladesh concludes that microfinance program does not help to alleviate poverty, instead only lead them to fulfill the consumption pattern among the recipients. In another research, Morris and Barnes showed the impacts of three microfinance programs – FINCA, FOCCAS and PRIDE, and concluded that microfinance program failed to reduce poverty but instead helped to reduce the problem of access to financing for the poor. According to Koveos, MFI and the participants look at the microfinance program as a grant and their rights and what the government should distribute to the poor’s. Such perception gives a negative impact towards the participants’ microenterprise performances and effectiveness of MFI’s operations. As a result, MFIs have been passive and non-aggressive in monitoring and have no interest in knowing how the micro financing is being used by the participants. Koveos concluded that the failure of government’s micro financing programs was caused by selection methods, screening of participants and funding’s that did not reach the target group. In this case, the funds were channeled to unprofitable small business sector that have political link to the borrowers. Chowdhury also mentioned that the program’s weakness in administration and policy was caused by beaurocracy, untransparent administration, inconsistent enforcement, lack of accountability, experiences and bribery, hence rendered the micro financing program ineffective.
Through the 9MP, the Malaysian government has recognized the importance of zakat fund as a source to be distributed to the Muslims in order to increase their economic status and eradicating poverty through entrepreneurship process. This is in accordance with empirical studies by Choudhury and Harahap and Patmawati Ibrahim which state that Islamic financial system, including zakat, can be widely used to generate the economy more effectively and helping the poor to generate sustainable flow of income through entrepreneurial activities. According to Sakai, Islamic microfinance program known as Baitul Maal wat Tamwil (BMT) is very important in Indonesia and the scheme has a positive impact towards the development of microenterprises operated by the poor Muslims. The importance of Islamic micro financing program is due to its characteristics that can overcome the weaknesses of conventional microfinance program pioneered by Grameen Bank which imposed increment of interest rate, high operating costs and default loan repayment. As for the microfinance program using the zakat fund through LZS, a study is needed to evaluate the effectiveness of the program in increasing the participants’ income through entrepreneurial concept and microenterprise. Therefore, efforts are needed to assess whether the ‘asnaf entrepreneurial development program’ has successfully increased the participants’ income and get them out of poverty.

Table 2: Expenditure Performance of Households Income Enhancement Program (HIEP), YBK.

Program KKLW Allocations 2003 (RM) Expenditure2000-2006

(RM)

Expenditure 2004 (RM) Excess of Allocations 2007 (RM)
Skills Training 603,000 45,328.43 177,412.59 281,719.65
Stalls Development 98,539.33
Total 143,867.76

Entrepreneurial approach is also very important to the poor and hard-core poor asnafs because reaching for micro business such as capital support from the distribution of zakat enables them to transform entrepreneurial ideas into reality through micro enterprises. The capacity to generate business profits through the entrepreneurial concept enables the status of an asnaf that receives support (zakat) to that of a person that actually pays the zakat. This concept is in-line with the approach introduced by Lloyd-Ellis and Bernhardt whereby, the higher is one’s entrepreneurship level the less would be his dependence on business capital funding facilities. This finding is in support with that of another study by Paulson dan Townsend which found that the higher the level of

About The Author

Kevin J. Brandon

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