Client protection and sustainable performance in microfinance institution

Abstract

Purpose Microfinance institutions (MFIs) provide credit to low-income beneficiaries, enabling them to gain access to financial assistance. To ensure that clients are protected, all MFIs should adhere to basic corporate governance principles to guarantee uniform standards, transparency and good corporate governance practices in their institutions. Hence, the purpose of this paper is to explore the client protection practices and sustainable performance of Amanah Ikhtiar Malaysia (AIM), a leading MFI in Malaysia. Design/methodology/approach Closed-ended questionnaires were distributed to managers and assistant managers at 76 AIM branches across the peninsular Malaysia. A response rate of 68 per cent was achieved from the total questionnaires distributed. Findings The result shows that the level of client protection in AIM is high. It shows that accountability and debt collection process have a significant influence on the level of sustainable performance of AIM, whereas transparency and transaction costs have an insignificant impact on the level of sustainability of AIM. Consistent with the agency theory and institutional theory, the result also implies that having better debt collection process policy and structure, and accountability among management will enhance the level of sustainability of AIM. Originality/value Previous studies focused on the single issue of sustainability in microfinance, such as on repayment performance among the poorest people whom AIM served as clients. However, studies on the accountability towards clients are still underdeveloped by researchers. Hence, the current study fills the gap by examining whether client protection affects the sustainability of AIM.

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“…IMFI's and community welfare through increased outreach to the poor. Bakar et al. (2019) , making Amanah Ikhtiar Malaysia (AIM) as the object of research proves that the accountability and collection process by IMFI positively impacts sustainability.…”

“…The correct application of the Shariah contract has proven to make IMFI more sustainable ( Aliyu et al., 2017 ). In addition, accountability and collection processes affect the sustainability of IMFI's ( Bakar et al., 2019 ). However, the source of funds also affects the sustainability of IMFI's ( Said et al., 2019 ; Sukmana et al., 2020 ).…”

“…(2017) Shariah financing contracts that emphasize moral aspects can encourage IMFI to be more sustainable, which in turn can affect the sustainability of IMFI and Community welfare through broader outreach to the poor. Bakar et al. (2019) The level of customer protection by AIM is very high.…”

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“…Effective management in microfinance entails not only financial controls and operational efficiency but also a profound grasp of clients’ socio-economic contexts. Balancing the dual goals of serving the underserved while ensuring financial sustainability through appropriate interest rates, loan repayment, and operational efficiency is paramount [ 14 , 57 , 58 ].…”

Dynamic Ethical Bank operations proposal framework for developing countries: Case of Sharkeia – Egypt

“…However, the cost of microcredit remains a drawback, constraining the performance of MSEs in Ghana. Besides this, those institutions working on client protection where, (Bakar, et. al, 2020) showed that the level of client protection in (Amanah Ikhtiar Malaysia) AIM is high.…”