Nexus Between Islamic Microfinancing and Financial Wellbeing of Microentrepreneurs during the Covid-19 Pandemic in Malaysia

Abstract

Islamic microfinance is expanding and penetrating its potential market over the globe. Access to credit or financing, especially during the COVID-19 pandemic, is vital for micro-entrepreneurs in climbing the socio-economic ladder that will contemporaneously increase their household income. In Malaysia, most of the MEs can hardly access financing from formal financial institutions due to poor credit rating, having zero to little collateral, income instability, small loan amounts, and high transaction costs. Alternatively, MEs approach Islamic microfinance institutions for their financing solution. Therefore, this study intends to investigate how far the utilization of Islamic microfinancing by MEs could enhance their quality of life. One hundred seven (107) usable questionnaires were analysed via the Structural Equation Modelling (SEM) AMOS using IBM ® SPSS and found that both investment and expansion factors played key roles in affecting the financial wellbeing of the micro-entrepreneurs. The results lend credence to the positive effect of Islamic microfinance products may have on MEs and indirectly support the long-term economic development for MEs. This study deliver implication to various angles. In practical part, it opens the eyes of micro-entrepreneurs to opt for the right path (expansion and investment) to achieve financial wellbeing. Government (regulators) can enhance the ability of Islamic microfinancing as a tool towards financial wellbeing and in theoretical part, this study deepens the scope of Schumpeter's theory by inculcate this theory with Islamic finance scope of study.

Relative financial deprivation, financial anxiety and financial satisfaction: the role of access to Islamic financing among MSME owners amidst COVID-19

“…However, result H3 illustrates that AIF and FS relationship is positively significant among MSME owners ( β = 0.271, t = 3.275 and p = 0.001), in line with the hypothesized relationship, and therefore, H3 has been accepted. This result is in line with the findings and arguments of preceding studies (Amin, 2017; Azman et al , 2021). Moreover, results of H4 ( β = −0.013, t = 0.202 and p = 0.420) indicate that AIF failed to moderate the relationship between RFD and FS among MSME owners because the result shows an insignificant p value.…”

“…However, the relationship between AIF and FS was found to be positively significant as posited in H3 . This finding supports that the greater the AIF, the greater the FS of MSME owners, which is in line with the result of preceding literature (Azman et al , 2021; Amin, 2017). The result of H3 is comparable to the findings of preceding studies as portrayed in the literature (Amin, 2017; Azman et al , 2021).…”

“…This finding supports that the greater the AIF, the greater the FS of MSME owners, which is in line with the result of preceding literature (Azman et al , 2021; Amin, 2017). The result of H3 is comparable to the findings of preceding studies as portrayed in the literature (Amin, 2017; Azman et al , 2021). For instance, many studies proved the positive relationship between AIF and positive financial behaviour.…”

“…Therefore, the findings of this work shows that expending more efforts on AIF will only influence the FS of MSMEs owners directly but could not resolve the negative impact of RFD and FA on FS. Nonetheless, this result accentuates the importance of promoting AIF among MSMEs owners to directly foster FS, as found in preceding studies (Azman et al , 2021). This is essential, particularly during disruptive periods such as the COVID-19 pandemic.…”

“…For instance, many studies proved the positive relationship between AIF and positive financial behaviour. Specifically, AIF was found to influence the financial well-being of micro entrepreneurs (Azman et al , 2021). Therefore, based on H4 results, regulators and MSME owners need to improve AIF ability as a means to increase FS.…”