The impacts of micro-credit financing on SMEs business sustainability

Abstract

Small and Medium Enterprises (SMEs) form the backbone of Malaysia's economy, contributing significantly to employment and economic development. Despite this, many Malaysian SMEs encounter substantial difficulties securing adequate financing, particularly micro-credit, which is essential for growth and sustainability. This study investigates the impact of micro-credit financing on business sustainability among SMEs in the Kedah and Perlis regions, investigating the roles of access to micro-credit, financial literacy, loan size, interest rate, repayment terms, and skills and knowledge of the entrepreneurs. A structured questionnaire, adapted from validated instruments, was distributed to 125 SME owners/entrepreneurs in Kedah and Perlis who have previously accessed micro-credit financing. This study utilized a quantitative design, with data collected and analyzed using Statistical Package for Social Sciences (SPSS) to examine the relationship between micro-credit financing and business sustainability indicators, assessed through correlation analysis. The findings reveal that access to micro-credit, financial literacy programs, and interest rates significantly and moderately influence business sustainability. At the same time, loan size, repayment terms, skills, and knowledge indicate a significant and low correlation with business sustainability. The findings suggest that micro-credit financing significantly influences SMEs' sustainability, highlighting the need for policy refinements to improve micro-credit programs.. This study contributes to the efforts to enhance SME development in Malaysia. This study also highlights the need to continuously investigate how access to micro-credit, financial literacy programs, and understanding interest rates can maximize the benefits of micro-credit financing.