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As a response to the failure of the formal financial sector to cater for the credit needs of poor people and small businesses, such as microenterprises, microcredit was introduced in the late 1970s by Professor Muhammad Yunus to help these people. Microcredit was designed to help poor people move from financial exclusion to financial inclusion. Because of its potential, such as reducing poverty, microcredit has been recognized as an efficient development intervention programme by many countries (Li, Gan, & Hu, 2011a). A growing number of SMEs worldwide need access to

microcredit; however, accessibility is still low, especially in developing countries (Hussain, Millman, & Matlay, 2006). Woldie, Mwita, & Saidimu's (2012) study of Tanzanian SMEs finds the biggest

challenge that hinders the growth of firms is limited access to microfinance services and products. Previous research has investigated the key aspects in accessing microcredit. For example, Li, Gan and Hu (2011a) studied at household level the determinants that influenced the accessibility of

microcredit in rural Chinese areas. The authors found that poor rural women have restricted access to the microcredit provided by Rural Credit Cooperatives. Also, the authors found that household factors, including income, assets, education level, location and household size, have different effects in determining accessibility to microcredit. For example, household income is a contributor to

households’ access to microcredit because of the higher demand for credit resulting from the higher capital needed by the household, hence it increases the probability of accessing microcredit.

Takahashi, Higashikata and Tsukada (2010) show that the characteristics of adult women were key factors for participation in microcredit programmes in Indonesia, but other village and household characteristics did not significantly affect the decision to participate. More notably, farmland and areas of residential lots, which can be a proxy for the capability to put up collateral, have no impact on participation. The collateral-free scheme did not influence participation, but relatively richer families gained access to microcredit more than the poor.

Table 3.1 summarises the determinants of access to microcredit. Previous studies have focused on obtaining microcredit at the household-level, but relatively few studies have examined the effect at the enterprise level. The objective of microcredit is to create self-employment for the ‘unbankable’, poor people setting up in business. Therefore, SMEs’ characteristics, such as the age of the firm, size of the enterprise and the economic sector, should not be neglected. It is important to see whether business characteristics have a significant influence on access to microcredit. Umoh (2006)

investigated the factors influencing access by small firms to microcredit in Nigeria. The author found that the type of enterprise has a significant effect on access to microcredit, but firm size was not significant. A recent study by Peprah and Ayayi (2016) pointed out that older age SMEs are more

38 likely to benefit from microcredit than younger businesses. The business age can be used as a proxy to determine the sustainability of the business in the past. Further, younger businesses seem unable to make good use of debt compared with mature enterprises. An investigation of this gap in the literature is essential to provide a better understanding of the credit market, particularly microcredit in Malaysia.

Many researchers describe networking as an essential factor in accessing bank loans because SMEs seek to access resources for development (Fraser et al., 2013; Moro & Fink, 2013; Shane & Cable, 2002). However, we are not aware of any study that specifically looks at networking as a key factor of access to microcredit. Therefore, networking is an interesting instrument to monitor among the factors influencing access to microcredit by SMEs in Malaysia. Limited access to microcredit perhaps reflects networking with loan-providing officials and business associations.

Increasing distance between small businesses and credit providers can be a key barrier to credit access (Petersen & Rajan, 2002; Presbitero & Rabellotti, 2014). Some studies document that distance is always associated with high transaction costs so it tends to decrease access to credit (Garikipati, 2012; Ibrahim & Bauer, 2013). Conversely, Dao, Mai and Kim (2014) found distance between enterprise and credit providers over 20 km can reduce the probability of facing credit constraints by 0.92%. This might happen when SMEs desire to access banks with stable credit relationships and familiar procedures despite the distance. The authors concluded that a short distance between the business and the bank is not necessarily a favourable condition for credit access.

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Table 3.1 Explanatory variables identified in previous studies affecting access to microcredit

8Note: Column 1: Age (A), Gender (G), Marital status (MS), Ethnicity (E), Education (EDU), Financial Training (FT), Experience (EXP) Column 2: Household size (HS), Household Income (HI), Income earner (IE)

Column 3: Age of business (AB), Size of business (SB), Ownership (O), Sector (S) Column 4: Loan provider (LP), Business Association (BA)

Column 5: Distance (D)

8 _{All variables listed are used in this study to determine the key factors in accessing microcredit by SMEs in Malaysia}

Author

Explanatory variables used in previous studies affecting access to microcredit Owner Characteristics (1) Household Characteristics (2) Business Characteristics (3) Networking (4) Distance (5)

Other Variables Used A G MS E FT EXP EDU HS HI IE AB SB O S LP BA D

Umoh

(2006) - - - x x x - x x x - - - - Level of sales, value of initial capital Takahashi et

al., (2010) x x x - - - x x - x - - - Area of residential property Li, Gan, &

Hu (2011a) x x - - - x x - - - x

Household assets, farm size, self-employment, village or township officials, location, attitude, alternative sources Durojaiye, Yusuf, & Balogun (2014) x x x - - - x x - - - - x

Interest on loan, payback period, social capital variables

Peprah &

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