Microfinancing Influence on Micro-Entrepreneurs Business Growth: Mediating Role of Psychological and Social Capital

Abstract

This paper is set out to uncover the phenomena of micro-enterprises business growth by hypothesizing microfinancing, social and psychological capital as factors. This research is important due to the fact that the paucity of information on how microfinancing, social and psychological capital relate to micro-enterprises business growth would obscure the ways in which they survive. In Malaysia, microfinance is used as one of the tools to alleviate poverty, as well as to improve the livelihood and standards of living of the poor and those who are financially excluded.  However, almost three decades after the introduction of microfinancing programmes, the performance of microfinancing recipients’ i.e. micro-enterprises in Malaysia is not satisfactory. Besides providing loans to these micro-entrepreneurs, other aspects of facilitation, including the inculcation of the entrepreneur’s intangible resources, need to be addressed. Therefore, this research examines the mediating effect of micro-entrepreneurs’ psychological and social capital on the relationship between microfinance provisions and the business growth of micro-enterprises. The samples are identified from two microfinance providers, i.e., Amanah Ikhtiar Malaysia (AIM) and the National Entrepreneur Group Economic Fund (TEKUN) micro credit financing scheme recipients’ databases. A total of 250 useable survey questionnaires was collected and analysed to test the hypothesised relationship. The data was analysed using Partial Least Square-SEM and the structural model was examined to test the hypotheses. The findings show that micro-entrepreneurs’ psychological and social capital have a significant mediating effects on the relationship between provision of microfinance and the business growth of micro-enterprises in Kelantan. This research offers the practical implication that the effects of micro finance provision on the business growth of micro-enterprises are better exerted through micro-entrepreneurs’ psychological and social capital. This theoretically supports the applicability of the Resource-based View (RBV) theory to explain the mediating effect of psychological and social capital on the relationship between microfinance provisions and business growth.

Research paper

Keywords: Micro-enterprise, Business growth, Psychological capital, Social capital, Mediation, Microfinance institutions

Reference to this paper should be made as follows: Nordin, N., Siti-Nabiha, A.K., & Kamalia, Z. (2019). Microfinancing Influence on Micro-Entrepreneurs Business Growth: Mediating Role of Psychological and Social Capital, Journal of Entrepreneurship, Business and Economics, 7(2), 130–161.