Microfinance / Microcredit

Overview​

Microcredit is the extension of very small loans (micro loans) to impoverished borrowers who typically lack collateral, steady employment and a verifiable credit history. It is designed to enable them to start a small business (micro enterprise).

Maximum Loan Amount

RM5,000 - RM50,000

Repayments

6 months to 5 years.

Interest Rate

6.38%-11.26% p/a

Speed

1 Weeks

 

How Does Microcredit Work

Well, first are you a registered sole proprietor / partner / private limited company?

Does your business comply with the National SME Development Council (NSDC’s) definition of Micro Enterprises as defined below:

For Manufacturing and Manufacturing Related Services Sectors:
Business with less than RM250,000 annual sales turnover or less than five (5) full time employees.

 

For Primary Agriculture and Service Sectors:
Business with less than RM300,000 annual sales turnover or less than five (5) full time employees.

And please note that your business must be in operations for at least 2 years.

COST

 

Unlike home loans that use the reducing balance method, Micro loans in Malaysia use the flat interest rate calculation method. The calculation is relatively simple:

Total Interest Payable = Principal x Interest Rate p.a. x Number of Years

Loan Amount - Relatively small, generally ranging between RM1,000 to RM50,000

Loan Tenure - The loan tenure is relatively shorter, normally up to 5 years at most.

Eligible Economic Sector

  • Some loans are only for specific economic sectors.

  • E.g.: PBMicro Finance is only for agriculture, services and manufacturing sector

  • E.g.: BSN Teman Mesra is only for manufacturing, service and retail sector.

Financing Purpose

  • Working capital and capital expenditure

  • Financing for fixed assets not allowed

  • Not for personal use

Where to Apply for a Micro Loan

In Malaysia, there are several banks which provide micro loans. At this time of writing (Mar 2015), the banks are as follows:

(a) Commercial Bank

  • Alliance Bank

  • AmBank

  • CIMB Bank

  • Public Bank

  • Maybank

  • United Overseas Bank

  • Bank Muamalat

(b) Development Bank

  • Agrobank

  • Bank Rakyat

  • Bank Simpanan Nasional

An applicant can go to selected branches of any of these participating banks to apply for a micro loan. Bank branches that provide microfinance facilities will display the National Microfinance Logo in the building.

Advantages of Microcredit

  • Lenient eligibility requirements (eg: Maybank Micro only requires a valid business license and does not have any income requirement for the borrower)

  • Generally, no collateral and guarantors are required

  • Fast approval and disbursement, ranging from 1 to 10 working days

  • Minimum documentation. Identity Card, Income proof (eg: pay slip and bank statement), utility bills and business registration form/license/permit

Disadvantages of Microfinancing /Microcredit

  • Low loan size

  • Short repayment period

  • Flat interest rate

  • Interest rate is normally higher compared to other loan packages

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