THE ROLE OF OWNER-MANAGER, FIRM

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THE ROLE OF OWNER-MANAGER, FIRM

CHARACTERISTICS AND STRATEGIES ON MICRO AND SMALL ENTERPRISE PERFORMANCE IN

MALAYSIA

BY

KAKOOZA SUNDUS

A Dissertation submitted in fulfillment of the requirement for the degree of Doctorate in Business Administration

Graduate School of Management International Islamic University Malaysia

August 2018

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ABSTRACT

In order to transform Malaysia from a middle income to developed nation, micro, small and medium enterprises (MSMEs) are seen as a key enabler to this transformation. As a result, the government has invested a lot of effort in numerous development programs that enhance financial accessibility and human capital development in order to achieve the transformation objective. Bank Negara Malaysia gave a mandate to various development financial institutions and selected financial institutions under the microfinance scheme, to provide loans and advisory services to MSMEs, in order to solve some of the challenges that they faced. These include; financial accessibility and limited business skills among MSME owner managers. It is upon this background that this study contributes to the understanding of the factors that determine MSME performance, by examining the role of loan amount and advisory services together with firm characteristics, owner manager characteristic and other business strategies on MSME performance. This study used original data from 381 MSMEs which are clients of Ehsan developmental financial institution in order to run a couple of inferential statistics. These included Mann-Whitney, Kruskal-Wallis test and multiple regression analysis. In order to reduce the variable that gave the best prediction of MSME performance, categorical regression analysis (CATREG) was utilized using lasso regularization. The results in the study showed strong contribution of loan amount and bookkeeping to enterprise performance. Similarly, firm size in terms of number of employee, gender, assets and number of customer had statistically significant results.

The study contributes to theoretical and knowledge bases, as well as empirical justification on variables in Storey’s framework. The results also had a bearing on different stakeholders, such as owner-managers, financial Institutions (FIs) and policy makers. There is a need for policy makers to review the information and advisory service programs as well as the method of delivery due to low levels of implementation.

Training, planning and insurance were other aspects that all stake holders had to look into in order to improve the current performance. The findings of the study also added to the existing empirical knowledge by supporting resource based view theory assumptions, on the influence of both internal and external resources on firm performance. Similarly, information and advisory services and loan amount (external credit) variables from Storey’s framework were examined in the context of Malaysia, and the results were robust in the overall regression. However, the study is limited to a single case study and survey, using cross sectional data in the service sector.

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ثحبلا ةصلاخ

Abs لماع اهنأ ىلع مجحلا ةطسوتملاو ةريغصلا عيراشملا ىلإ رظني ،ةمدقتم ةلود ىلإ لخدلا ةطسوتم ةلود نم ايزيلام ليوحتل ززعت يتلا ةيمنتلا جمارب نم ديدعلا يف دوهجلا نم ريثكلا ةموكحلا ترمثتسا ،كلذل ةجيتنو .لوحتلا اذهل يسيئر نيكمت ةيناكمإ

ضورقلا ىلع لوصحلا فده قيقحت لجأ نم يرشبلا لاملا سأر ةيمنتو

اذه لا اضيوفت يزيلاملا ينطولا كنبلا ىطعأ .لوحت

تامدخلاو ضورقلا ميدقتل رغصلأا ليومتلا جمانرب راطإ يف ةراتخم ةيلام تاسسؤمو ةيئامنلإا ةيلاملا تاسسؤملا فلتخمل ةيناكمإ لمشت يتلاو ,اههجاوت يتلا تايدحتلا ضعبل لولج داجيا لجأ نم مجحلا ةطسوتملاو ةريغصلا عيراشملل ةيراشتسلاا هذه یلع ءانبو ؛ةطسوتملاو ةريغصلا تاكرشلا كلام ىدل ةيراجتلا لامعلأا تاراهم ةيدودحمو ،ضورقلا ىلع لوصحلا للاخ نم اميس لاو ؛ةطسوتملاو ةريغصلاو ىرغصلا عيراشملا ءادأ ددحت يتلا لماوعلا مهف يف ةساردلا هذه مهاست ةيفلخلا عم ةيراشتسلاا تامدخلاو ضرقلا ةميق رود ةسارد ةيراجتلا لامعلأا تايجيتارتساو ،كلاملا ريدملا ،ةكرشلا :صئاصخ

مجحلا ةطسوتملاو ةريغصلا عيراشملا ءادأ ىلع ىرخلأا ةيلصأ تانايب ةساردلا هذه تمدختسا.

ـل 183 ةريغص ةسسؤم

تلمش دقو ؛ةيللادتسلاا تاءاصحلاا ضعب ءارجلا ةيئامنلاا ةيلاملا ناسحإ ةسسؤم نم ةمدقم ةطسوتمو بتخا

را نام - تيو ين

Mann-Whitney سيلاو لاكسورك ،

Kruskal Wallis لضفأ ىطعأ يذلا ريغتملا ليلقتلو ,ددعتملا رادحنلاا ليلحتو ,

لمعتسا دقو ،مجحلا ةطسوتملاو ةريغصلا تاسسؤملا ءادلأ ؤبنت CATREG

مادختساب lasso regularization ترهظأ .

رقلا ةميق ةمهاسم ةوق ةساردلا هذه يف جئاتنلا ددع ثيح نم ةكرشلا مجح كلذكو ؛ةسسؤملا ءادأ ىلع رتافدلا كسمو ض

ةيئاصحإ ةللاد تاذ قورف كانه تناك امك .ايئاصحا ةماه جئاتن ترهظا دق ءلامعلا ددعو ،لوصلأاو ،سنجلاو ،نيفظوملا يبترلا عومجملا نيب لوصلأا عومجمو تاعيبملا تادئاع ثيح نم ةفلتخملا ةيراجتلا لامعلأا عاونلأ

نأ نم مغرلا ىلعو.

و ةدحاو ةلاح ةسارد ىلع رصتقت ةساردلا نايبتسا

دعاوقلا يف مهاس هنإف ،تامدخلا عاطق يف يعطقملا ليلحتلا مادختساب ،

يروتس راطإ يف تاريغتملل يبيرجتلا ريربتلا نع لاضف ،ةيفرعملاو ةيرظنلا Storey

باحصأ فلتخمب ةقلاع جئاتنلل ناكو .

ملا يريدم لثم ،حلاصملا تاسايسلا يعضاوو ،ةيلاملا تاسسؤملاو ،يئامنلإا ليومتلا تاسسؤمو ،لا

أ جئاتنلا تحرتقاو.

ن

ضافخنلا ارظن ذيفنتلا ةقيرط نع لاضف ةيراشتسلاا تامدخلاو تامولعملا جمارب رابتخا ةداعاب تاسايسلا اوعضاو موقي بناوج يه نيمأتلاو طيطختلاو بيردتلل ةبسنلاب كلذكو ؛ذيفنتلا تايوتسم لا ةحلصملا باحصأ عيمج ىلع نيعتي ىرخأ

رظن

معد ةساردلا جئاتن تفاضأ امك .يلاحلا ءادلأا نيسحت لجأ نم اهيف تايضرف

دراوملا ىلع ةينبملا ةيؤرلا ةيرظن resource

based view حف مت ،لثملابو .ةكرشلا ءادأ ىلع ةيجراخلاو ةيلخادلا دراوملا ريثأت ىلاو ، ةيبيرجتلا ةفرعملا ىلإ

ص

يروتس راطإ يف تاريغتمك )يجراخلا نامتئلاا( ضرقلا ةميقو ةيراشتسلاا تامدخلاو تامولعملا Storey

نمض قايسلا

ماعلا رادحنلاا يف ةنيتم جئاتنلا تناكو ،يزيلاملا .

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APPROVAL PAGE

The thesis of Kakooza Sundus has been approved by the following:

_____________________________

Prof. Dr.Norma Md Saad Supervisor

_____________________________

Assoc. Prof. Dr. Adewale Abideen Co-Supervisor

_____________________________

Assoc. Prof. Dr. Salina Hj. Kassim Internal Examiner

_____________________________

Prof. Dr. Ismail Ahmad External Examiner

_____________________________

Assoc. Prof. Dr. Md. Yousuf Ali Chairman

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DECLARATION

I hereby declare that this dissertation is the result of my own investigations, except where otherwise stated. I also declare that it has not been previously or concurrently submitted as a whole for any other degrees at IIUM or other institutions.

Kakooza Sundus

Signature ... Date ...

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COPYRIGHT PAGE

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH

THE ROLE OF OWNER-MANAGER, FIRM

CHARACTERISTICS AND STRATEGIES ON MICRO AND SMALL ENTERPRISE PERFORMANCE IN MALAYSIA

I declare that the copyright holders of this dissertation are jointly owned by the student and IIUM.

No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright holder except as provided below

1. Any material contained in or derived from this unpublished research may be used by others in their writing with due acknowledgement.

2. IIUM or its library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes.

3. The IIUM library will have the right to make, store in a retrieved system and supply copies of this unpublished research if requested by other universities and research libraries.

By signing this form, I acknowledged that I have read and understand the IIUM Intellectual Property Right and Commercialization policy.

Affirmed by Kakooza Sundus

……..……….. ………..

Signature Date

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DEDICATION

I dedicate this research to my dear parents Sheik Hussein R. Kakooza and Hajat Jannat Kakooza

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ACKNOWLEDGEMENTS

Firstly, I thank the Almighty Allah subhanahu wa ta'ala for giving me the gift of life, strength and determination to reach this level of academic excellence. I wouldn’t have come this far save for his mercy and blessings. It is my utmost pleasure to dedicate this work to my dear parents who granted me the gift of their unwavering belief in my ability to accomplish this goal: thank you for your support and patience. To my children, Husnah, Niemah, Muhsin and Rayyan who have endured living without their parents for this entire academic period. You have given me the courage to complete hoping for a better tomorrow. And to Dr.Golooba Moses, you have been part of this journey throughout suggesting, brainstorming and uplifting me whenever things where tough.

Thank you.

I wish to express my appreciation and thanks to my dear supervisors, Prof Dr.

Norma Md Saad and Dr. Adewale Abideen Adeyemi for the guidance, encouragement, patience and continuous support during my research journey. May Allah reward you abundantly. I would also like to extend my sincere gratitude to Dr. Mustafa Omar for his overwhelming support and guidance during my entire study period in IIUM, Dr.

Sharifa Raihan, Prof Emeritus Dr. Sulaiman, and Assoc. Prof Dr Siraje Ssekamanya for always asking and encouraging my progress. Sister Siti Hawa for always settling my concerns with just one call.

I also wish to thank, my friends, Dr Taha Kasule for his guidance and support together with his wife Nalongo Amina. Shakirah and Dr Nazeefa, for their time and support throughout my study period, Sister Akidah for running to my rescue when I badly needed help. To the members of my dissertation committee, thank you for sticking with me.

Finally, a special thanks to my family, my dearest parents, Aziz, Hajat Aminah, Hajji Bbuye, Siraje, Salma, and Noordin. I am really blessed to have you, you believed in me up to the very end. I also appreciate and acknowledge the sacrifices you have made for me during this journey; May Allah reward you generously. Lastly but not least, I’am grateful to the Malaysian government for the common wealth scholarship, without which I wouldn’t have managed to pay for this course. Furthermore, special thanks to Dr Ahmed Totonji and Prof. Dr Omar Hassan Kasule for funding my upkeep during my extended study period. Jazakallahu Khairan.

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LIST OF TABLES

Table No. Page No.

Table1.1 Contributions of MSMEs to GDP by sectors in Malaysia 3

Table2.1 Definition of SMEs in Malaysia 16

Table 2.2 MSMEs’ contribution to the overall GDP 17 Table 2.3 The different ministries and agencies that support MSME in Malaysia 22 Table 2.4 DFIs under the Microfinance scheme 26 Table 3.1 The most commonly used theories in studying MSME performance 55 Table 3.2 The variables under the three elements of Storey’s 1994 framework. 62 Table 3.3 Reviewed studies using variables firm Storey’s frame work 65 Table 3.4 Some of the models used to measure enterprise performance 70 Table 3.5 Comparison of the revolutionary and evolutionary views of E-business95 Table4.1 The service sector – subsector and the number of microenterprises 108 Table 4.2 Proposed breakdown sample distribution of MSMEs for each state 111 Table 4.3 Model summary 120

Table 4.4 Component loadings 121

Table 4.5 Operationalization of variables 128

Table5.1 Demographic profile of respondents 133

Table 5.2 Correlation between dependent and independent variables 140

Table 5.3 Descriptive statistics of business type 143

Table 5.4 Descriptive statistics of firm size 143

Table 5.5 Summary of number of employees 144

Table 5.6 Descriptive statistics for advisory services 145 Table 5.7 Descriptive statistics for responses on entering newmarket 146

Table 5.8 Descriptive statistics for other variables 147

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Table 5.9 Mann Whitney results for gender and sales revenue 149 Table 5.10 Mann Whitney results for gender and total assets 149 Table 5.11 Mann Whitney results for firm size and sales revenue 150 Table 5.12 Mann Whitney results for Firm size and total assets 150 Table 5.13 Summary of Mann Whitney U for the groups that implemented advisory

services and sales revenue 151

Table 5.14 Summary of Mann Whitney U for the groups that implemented advisory

services and total assets 152

Table 5.15 Results for Kruskal -Wallis test for business type and sales revenue 153 Table 5.16 Post hoc results for business type and sales revenue 154 Table 5.17 Results for Kruskal -Wallis test for business type and total assets 154 Table 5.18 Post Hoc results for business type and total assets 155 Table 5.19 Summary of Kruskal-Wallis statistics for between age group and sales

revenue 155

Table 5.20 Summary of Kruskal-Wallis statistics for between age group and sales asset 156

Table 5.21 Summary of Kruskal-Wallis statistics for between education level and sales

revenue 156

Table 5.22 Summary of Kruskal-Wallis statistics for between education level and total

assets 157

Table 5.23 Summary of results from the Mann-Whitney and Kruskal-Wallis tests 157

Table 5.24 Regression results for six models 160

Table 5.25 The coefficients for model 5 and 6 168

Table 5.26 Summary of the research objectives, research hypotheses and findings 179

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LIST OF FIGURES

Figure No. Page No.

Figure 2.1 The benefits of savings to MSMEs. 34

Figure 2.2 The stages of microfinance implementation 39

Figure 4.1 Lasso paths before and after imposing a penalty 124 Figure5.1 The scatter plot and normality plot for the regression 138

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LIST OF APPENDICES

Appendix 1: Categorical regression (CATREG) results………..200 Appendix 2: Normality test done in preparation for the Anova test………....201 Appendix 3: Test of Homogeneity of variance for advisory service variables……203 Appendix 4: Test of Homogeneity of variance for categorical variables of revenue ………..205 Appendix 5: Research instrument………..206

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ABBREVIATION

MSME Micro Small and Medium Enterprises

GDP Gross Domestic Product

DFI Development Financial Institutions MFI Micro Finance Institutions

ASEAN Association of South East Asian Nations

BNM Bank Negara Malaysia

NGO Non- Government Organization

BRI Bank Rakyat Indonesia

ICT Information and Communication Technology SME-CORP Small and Medium Enterprise Corporation

AIM Amanah Ikhtiar Malaysia

YUM Yayasan Usaha Maju

TEKUN Economic Fund for National Entrepreneurs Group MARA Council of Trust to the Bumiputera

NSDC National SMEs Development Council

NEP New Economic Policy

RIDA Rural Industrial Development

HIP High Impact Programs

FTA Free Trade Agreements

MITI Ministry of International Trade And Industry MIDF Malaysian Industrial Development Finance

OECD Organization for Economic Co-Operation And Development GCC Credit Gurantee Corporation

RBV Resource Based View

TGF The Theory of the Growth of the Firm IFC International Finance Corporation

BAAC Bank for Agriculture and Agriculture Co-Operatives CAATEC Comisión Asesora En Alta Tecnología

IBS Internet Business Solutions

MCMC Malaysian Communications and Multimedia Commission CATREG Categorical Regression Analysis

TAKAFUL Islamic Insurance

SCM Security Commission Malaysia

EPF Bumiputera Entrepreneur Project Fund

RM Malaysian Ringgit

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Micro, small and medium enterprises (MSMEs) account for 98 percent of global business establishments (Katua, 2014); they constitute 99.8 percent of the enterprises in Europe (Borneopost, 2015) and 99.5 percent of businesses in sub-Saharan Africa (Fjose, Grunfeld, and Green, 2010). MSMEs are regarded as a vehicle for economic development in the developed, developing and emerging economies. They contribute to the GDPs and employment in those countries. In Asia for example, MSMEs contribute 42 percent to GDP and 62 percent to employment (Borneopost, 2015). They provide 67 percent of the European workforce and generate 57 percent in revenue (Lopez-Nicholas and Soto-Acosta, 2010). The World Bank Group (2015) reports that formal MSMEs in emerging markets contribute up to 33 percent of GDP and 45 percent of employment.

In sub-Saharan Africa, MSMEs contribute 30 percent to employment.

Furthermore, MSMEs also contribute immensely to the use of local raw material, create a viable market (Emmanuel, Dele, and Odunlami, 2013), improve income distribution (Tehseen and Ramayah, 2015), savings mobilization (Beck, Demirguc-Kunt and Levine, 2005) and act as a training ground for future entrepreneurs.

Their contributions are also recorded in the areas of poverty alleviation and improved standard of living (Emmanuel, Dele, and Odunlami, 2013), hence leading to economic development (Colman, 2006) and socially enriching the lives of the poor.

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In the specific case of Malaysia, in 2016, MSMEs accounted for 98.5 percent of the total 907,065 business establishments; where 76.5 percent are microenterprises, 21.2 percent are small, and 2.3 percent are medium enterprises (Economic Census Report, 2016; Sidek and Mohamad, 2014). MSMEs contribution to GDP rose from 32.7 percent in 2012 to 36.6 percent in 2016 and in employment from 57.5 percent in 2012 to 65.3 percent in 2016. The Malaysian economy achieved a strong growth from 4.7 percent in 2013 to 6 percent in 2014. This growth was mainly from the manufacturing and services sectors due to MSMEs contributions (SME annual report, 2014). Furthermore, the MSMEs in the service sector achieved a higher growth of 8.7 percent compared to the overall service sector growth of 6.5 percent.

The key growth contributors include wholesalers and retail trade, restaurants, accommodation (62% of total MSME in the services sector) and ‘other services’ subsector, namely private education, healthcare and personal services (SME annual report, 2014). However, there was a decline in the growth rate in 2015 and 2016 of 5 percent and 4.2 percent respectively due to the global financial crisis (SME annual report, 2016/17). A recovery of 5.7 percent growth rate in the 2017 was realized due to domestic demand mainly from private consumption. Table 1.1 below, shows MSME contributions across the major sectors of the Malaysian economy.

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Table 1.1 Contribution of MSMEs to GDP by sectors in Malaysia¹

Year 2010 2011 2012 2013 2014 2015 2016p

Agriculture 4.3 4.3 4.1 4.0 4.5 4.3 4.1

Mining & Quarrying 0.0 0.0 0.1 0.1 0.1 0.2 0.2

Construction 0.9 0.9 1.0 1.1 2.1 2.1 2.1

Manufacturing 7.2 7.4 7.4 7.5 7.8 7.9 7.9

Services 19.6 19.9 20.0 20.5 21.1 21.4 21.8

Plus: Import duties 0.2 0.3 0.3 0.3 0.4 0.5 0.5

SME GDP share to overall GDP

32.2 32.8 33.0 33.5 35.9 36.3 36.6

p: preliminary Source: SME annual report 2016/17

The Malaysian government has put so much effort in supporting MSMEs since independence, under the numerous programs by investing billions of ringgits, to ensure social and economic development. In 2014 alone, the government invested about Ringgit Malaysia (RM) 5.1 billion in a total of 139 MSME programs which are estimated to have been accessed by over 500,000 MSMEs across all economic sectors (SME Annual Report, 2014). It is not surprising that their contribution towards the GDP has been increasing as shown in Table 1.1 above. However Malaysian MSMEs’ GDP contribution of 35.9 percent is still lower compared to other middle-income nations, whose average GDP contribution is 39 percent and 51 percent for high-income nations (Wong, 2013). This shows that Malaysian MSMEs have room to achieve higher performance since the country’s growth and development highly depends on their performance. Therefore, policymakers aim to enable MSMEs attain GDP contribution of 41 percent, employ 62 percent of the workforce and 25 percent in exports by the year 2020² (Star Times Business News, 15 August 2013).

1 Department Of Statistics Malaysia And SME Corp. Malaysia

2 The SME Master Plan 2012-2020 : Catalyzing Growth And Income

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Despite the government effort through financial and non-financial support under the microfinance programmes, the performance of MSMEs is still low compared to other countries in the region. Abdullah and Manan (2010) assert that majority of small businesses do not receive adequate assistance despite the numerous programmes and agencies that are placed to help MSMEs. Similary, Zairani and Zaimah (2013) report that many micro and small enterprises cannot access credit from banks due to lack of proper documentation of business records. MSMEs face other challenges; which include (1) lack of skills development (Anuar, Mansor and Din, 2016), (2) lack of market knowledge (Nawai, 2011), (3) limited skilled human capital, (4) poor management skills and (5) inadequate investment (Nawai and Bashir, 2009). Karlan and Valdivia (2011) add that majority of the self-employed poor rarely obtain any formal training in business skills. Yet enterprises that engage in business advisory services effectively experienced a higher growth than those that do not (Berry and Sweating, 2006).

In order to solve these challenges, the Malaysian government mandated financial institutions and developmental financial institutions (DFIs) under the microfinance scheme in 2006, to provide microfinance loans, advisory services and support to enhance performance of MSMEs (SME annual report, 2006). Under the microfinance scheme, there are six commercial banks mandated to provide microcredit and advisory services to borrowers, who are mainly individuals running their own micro and small business (MSMEs). These include Maybank, CIMB, AmBank, Bank Muamalat, Public Bank, RHB, and Alliance Bank. The banking institutions have been commended for their contribution in providing access to external funds. For instance, in 2014, the banking institutions extended 90 percent of external funds to MSMEs and DFIs contributed 5 percent (SME Annual Report, 2014).

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Though the use of external advice is increasing among small to medium-sized enterprises (SMEs), there has been a concern that the services provided do not meet the needs of the owner-managers (Curran, 2000). Notably, microenterprises need them more due to their lack of experience, managerial skills among other challenges.

However, there are limited studies done on advisory services in developing countries such as Malaysia (Devi and Samujh, 2010). Hakimin, Rafi, and Dahlan ( 2010) did a study on the awareness of business advisory services among some micro enterprises in Kelantan-Malaysia, focusing on the services given by the various government agencies.

The results showed that majority of the respondents were not aware of the existence of such services. Their results were similar to those of Ismail and King (2007) and Liddicoat and Stringer (2005). Whereas Ahmad, Latif, and Abdullah (2013) assessed the effect of advisory services on the growth of small scale food processors in Selangor.

Their results showed that technical advices had greater influence on sales growth, while business and management advice had greater influence on both sales growth and owner- manager’s ability to manage business.

Furthermore, the financial institutions in Malaysia under the microfinance scheme have disbursed a total of RM 2.7 billion to more than 168,000 microenterprises from 2006 to 2014. The government has increased the funds to RM 2.9 billion to benefit more than 176,000 micro entrepreneurs as at end of June 2015 (SME Annual Report, 2014). On top of the finances, all institutions under this scheme are supposed to give managerial advisory services to microenterprises. These services include preparing business plans, establishment of an accounting system, preparing a regular income statements, cash budgets, and production cost analysis (SME Annual Report, 2014).

These practices are essential for the smooth running of businesses and key to obtaining loans and alliances or partnerships which are important in this particular time when the

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Malaysian markets are opening up to other Asian countries under ASEAN. However little is known about how these services have impacted the performance of MSMEs.

Therefore, there is a need to study the role of microfinance loans, advisory services and other important determinants of MSME performance in a developing economy like Malaysia.

1.2 PROBLEM STATEMENT

In line with the national transformational agenda, the Malaysian government considers MSMEs as the most viable enabler in transforming the country from a middle-income to a developed nation by 2020 (Yeng Kiat and Shuhymee, 2012; Ng and Kee, 2012;

Mohamad, et.al., 2014). The effort exhibited by the Malaysian government to enhance the performance of MSMEs is undeniable. The programs include; improving financial accessibility and human capital development among others. Huge financial investments amounting to billions of ringgits have been spent in a number of programs under 15 ministries and 60 agencies. Developmental financial institutions (DFI) and commercial banks were given the mandate to provide loans and advisory services to the MSMEs to compliment the already existing programs. These efforts have not gone to waste; indeed there has been a remarkable improvement in the performance of MSMEs. This is reflected in their contribution towards GDP of 36.6 percent, 57.5 percent of the employment and 18.6 percent in export (SMEcorp, 2016).

However, all these still fall short of what is required to achieve a high-income nation status (Yusoff, Yaacob, and Ibrahim, 2010; Poo, 2013) due to the low levels of performance (Hatinah, Mahmood, and Ismail, 2015). Ng and Kee (2012) and Yacoob, Mohammad, Zin, and Puteh (2014) also affirm that the MSMEs’ contribution in terms of employment, GDP and export is still low compared to the amount of effort the

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government has put in their development. The participating agencies provide limited financial assistance to micro-enterprises because the financing is relatively small and the type of facilities sometimes do not suit the microenterprise business needs (Hassan, Yeow, Chin and Ashikin, 2010). MSMEs without collateral or fixed deposits cannot get loans approved. This is worsened by their inability to make proper accountability, proper record keeping and proper business plans among other business practices. Haron et. al. (2013, p. 183) asserts that the issue of financial accessibility is mainly due to lack of financial track record. However, Bank Negara Malaysia (2005) reports that some sectors or groups of businesses lack financial trust and limited credit history due to their business characteristics³.

In addition, micro and small entrepreneurs lack proper financial management skills and practices (Karadag, 2015). Although various agencies and centers provide business support and information for MSMEs in all states in Malaysia, owner-managers haven’t utilized them due to low levels of awareness (Yusoff, Yaacob, and Ibrahim, 2010). Despite the effort that the Malaysian government has exerted, by mandating the commercial banks and DFI to provide credit and business advisory services to MSMEs, the role of these services has not been well documented in Malaysia compared to the developed nations.

Studies done in developed countries show that MSMES that sought business advice and support experienced positive effects on their performance in the UK (Berry, Sweeting, and Goto (2006), Robson and Bennett (2000), Barbera and Hasso (2013), Cumming and Fischer (2012) and Mole et. al., (2011). More so, Shepherd and Wiklund (2005) assert that the frequency of contact with advisory service providers led to higher

3 Datuk Zaman Abdu Gani Deputy Governor's Speech at the International CEO Forum of the Development Finance Institutions 2005 : Role of Development Financial Institutions in the Financial System

THE ROLE OF OWNER-MANAGER, FIRM

THE ROLE OF OWNER-MANAGER, FIRM

CHARACTERISTICS AND STRATEGIES ON MICRO AND SMALL ENTERPRISE PERFORMANCE IN

MALAYSIA

BY

KAKOOZA SUNDUS

A Dissertation submitted in fulfillment of the requirement for the degree of Doctorate in Business Administration

Graduate School of Management International Islamic University Malaysia

August 2018

ABSTRACT

ثحبلا ةصلاخ

APPROVAL PAGE

DECLARATION

COPYRIGHT PAGE

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH

THE ROLE OF OWNER-MANAGER, FIRM

CHARACTERISTICS AND STRATEGIES ON MICRO AND SMALL ENTERPRISE PERFORMANCE IN MALAYSIA

DEDICATION

ACKNOWLEDGEMENTS

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

LIST OF APPENDICES

ABBREVIATION

CHAPTER ONE

INTRODUCTION