The Role of Entrepreneurial Empowerment in the Relationship between Islamic Microfinance and Well-Being of Clients: A View from a Service Provider

Abstract

Islamic microfinance has been reported as appropriate in improving the living conditions of the poor. However, little is known about the contribution of entrepreneurial empowerment in achieving such success. The objective of this study is to examine the mediating role of entrepreneurial empowerment in the relationship between Islamic microfinance and well-being of clients. A sample of 291 respondents was selected randomly from the operational staff of Amanah Ikhtiar Malaysia in east-coast states of Malaysia. Structural Equation Modelling was used as the statistical procedure to analyse the data. The results supported three hypotheses, which confirmed that Islamic microfinance has positive relationship with entrepreneurial empowerment. However, three hypotheses were rejected on the relationship between Islamic microfinance and clients’ well-being, suggesting that Islamic microfinance does not improve the clients’ well-being. The seventh hypothesis was also supported, which indicates a full mediation role of entrepreneurial empowerment. The unique finding of the study is that, entrepreneurial empowerment is the underlying factor for the success of Islamic microfinance. To enable generalisation of this finding, further study is recommended in other Muslim countries.

Keywords: Islamic microfinance; Empowerment; Well-being; Amanah Ikhtiar; Malaysia

JEL Classification: G21; G23; G29