Factors Contributing to Success to the Excellent Credit Cooperatives in Malaysia. Mustapa KM1, Saadah2, Yusof.ARM3, Jumaat4 1
Pchairman of Cooperative Ukhwah Malaysia Berhad@ Ph.D UPSI. Email:
[email protected] 2 Institute of Quran Malaysia. 3&4 Senior Lecterer of Universiti Pendidikan Sultan Idris, Malaysia.
Abstract: Credit Cooperatives serve to stabilize the global economy and provide cash loans to low and middle income people in Malaysia. Total numbers of credit cooperatives in Malaysia now are more than 613 of more than 8000 registered society with a total membership of more than 8 millions people, who are eligible to receive a credit cooperative loan facility. The purpose of this research is to identify outstanding entrepreneurial attitudes possessed by members of the Board of excellent credit Cooperative to be the role model to other members of the Board of Cooperative since there are various obstacles in running the credit cooperative whether from the government policies or external competitions. The methods used in this study are a questionnaire method using instruments adapted from questionnaires Entrepreneurs “Perception of Success Inventory” (EPSI). Of 613 registered credit cooperatives, only 35 cooperatives managed to qualify in the category of best 100 cooperatives listed by the Cooperative Commission of Malaysia, with a total population is 350 credit Cooperative Board members. Variable tested was the phenomenon of credit cooperatives success as the dependent variable with nine dimensions as the independent variables. They are difficulty goal setting, goal clarity, action oriented personality, circumstances oriented personality, planning knowledge, leadership knowledge, management knowledge, motivation and Islamic financing. Data were analyzed using SPSS version 21, tests are conducted prior to factor analysis and correlation analyses found were significant for seven variables. Regression model can be built and the most dominant variables affecting the success of credit cooperatives is setting clear goals with relationship strength is 25 % of the tested variants.
Keywords: 35 excellent credit cooperatives, Entrepreneurs' Perception of Success Inventory (EPSI), goal setting, personality, knowledge, motivation and Islamic financing.
(I)
Introduction; The ability of the cooperative movement to restore global economic crisis. The principles and the values brought about by the cooperative movement is a key pillar of the success of the cooperative movement around the world, Smith & Ross (2006). The establishment of cooperative banking in various forms such as credit unions, building societies and cooperative banks focusing the needs of the members has managed to carry out financial activities to their members wisely. Excessive risktaking banks such as private banking system that eventually led to the institution's problems when the economic crisis hit the world. Commercial banks may face difficulties due to the individual's perception about the big risk when performing loans due to interest rate variable (Chong, 2009) during the financial crisis. Meanwhile, credit cooperatives can enjoy the increased of business from members and should take this golden opportunity and offer additional services or other benefits to members of the cooperatives. Housing cooperatives may be able to identify the accepted impact as the price of cement, brick and steel are increased, and consumer cooperatives need to improve the quality and the value of their products.
1
The principles and the values of the cooperative;
1.
1st. Principle : Voluntary and Open Membership Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
2.
2nd. Principle : Democratic Member Control Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives members have equal voting rights (one member, one vote) and cooperatives at other levels are also organised in a democratic manner.
3.
3rd. Principle : Member Economic Participation Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.
4.
4th. Principle : Autonomy and Independence Cooperatives are autonomous, self-help organizations controlled by their members. If they enter to agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.
5.
5th. Principle : Education, Training and Information Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives. They inform the general public – particularly young people and opinion leaders – about the nature and benefits of cooperation.
6.
6th. Principle : Cooperation among Cooperative Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
2
7.
7th. Principle : Concern for Community Cooperatives work for the sustainable development of their communities through policies approved by their members. In practice, these principles provide a general starting point and motive to cooperative-based business activities. However, on this common basis a wide variety of different national and sectoral cooperative model solutions have sprung up that can also vary considerably in how they emphasise principles (van Dijk, 1999; Nilsson, 1999; Parnell, 1995). In modern mainstream economic literature, the cooperative is defined as a company owned and controlled by its users and operated in their interests. A more general reference is to member and customer-owned companies (Nilson, 1999).
(II)
Statement Of Problem From Cooperative Credit i.
There are three issues which continue to be the obstacles for the credit cooperatives in Malaysia; First, the policy issues from
the Cooperative Commission of Malaysia(CCM); second,
competition from non-cooperative institution and third, compliance with the instructions of the Central Bank of Malaysia. The biggest tragedy happened on credit cooperatives is the suspension of activities of 8 credit cooperatives by the Cooperatives Commission of Malaysia (CCM) in 2010. The activities that are prohibited to be carried out by definition of Models 3 through GP6 or GP7 circular issued by the CMC (11 November 2010). The situation is worsen when CCM intentionally only gives the permission to carry out the credit activities using Model 3 to only one new credit cooperative, causing great lose on the suspended credit cooperatives due to membership transfer to the new cooperative and not able to generate new revenue.
ii.
Though competition from companies that are not co-operative and other Financial Institutions non-cooperative institutions perceived as a threat to the business of credit cooperatives such as Coshare Company Holdings Berhad, Malaysian Building Society (MBSB) and Bank Rakyat Malaysia (Bank Rakyat). They can offer better such as payment to customers (payout) is 100%, the customer may be able to get more cash from the net when they make loan from Coshare, profit rate loans from 3.5% to 4.3% and a long repayment period of 20 years. This phenomenon enables credit cooperative to compete with these institutions in the market.
iii.
Central Bank instructions to shorten installment duration; Credit cooperatives offer financing with long repayment periods up to 25 years of personal finance products, but the new Central Bank of Malaysia’s rule pursuant to section 31(1)(a) of the Central Bank of Malaysia Act 2009 (Akta BNM), set so all credit cooperatives registered with the Cooperative Commission of Malaysia under the Cooperative Societies Act 1993 to comply with the financial stability measures such as the repayment period for personal loan does not exceed the maximum period of 10 years, the method of calculating payroll deductions for the purpose of financing under the scheme of ANGKASA Deduction Bureau
is extended to take into account
reimbursement amount for all loans taken (ie, include both loan under the scheme and outside the scheme) and pre - approved personal financing is prohibited. New method of calculating the limit
3
of 60% of the financing facility through payroll deductions offered under the BPA scheme is extended as follows : The Ratio of Debt Repayment (DSR)
=
All Loan Repayment Net income after Statutory Deduction
With the latest directive from Central Bank of Malaysia, the client is reduced as a short payback period causing high monthly installments that cannot be afforded by the customers and thus the credit cooperative business is declined and adversely affected.
(iv) GST
(III)
Ojectives The purpose of this study is to extend the previous research which highlights the effectiveness of entrepreneurial traits in credit cooperative board members to identify the level of success. Based on the statement of problems above, we have outlined a number of objectives to be achieved in the study of credit cooperatives in Malaysia. The objective of the study is identified and is followed by a study and eventually null hepotesis will be tested: Ho1 : There is no significant relationship between goal setting with the success of credit cooperatives. Ho2 : There is no significant relationship between personality and success of credit cooperatives . Ho3 : There is no significant relationship between knowledge and success of credit cooperatives Ho4 : There is no significant relationship between motivation and success of credit cooperatives Ho5 : There is no significant relationship between Islamic financing to the success of credit cooperatives
Finally a model equation for this study will be developed and be able to identify the variables most dominating phenomenon of success of credit cooperatives in this study.
(IV)
FRAMEWORK CONCEPT A study of conceptual frameworks have been taken and adapted from a concept developed by Yurkiewicz (1996), Sun (2003), Valdez (2009) and Zahiruddin (2011) to carry out research on the phenomenon of the success of credit cooperatives in Malaysia. The variables studied are successful phenomenon as the dependent variable, while the independent variables as predictors of success of credit cooperatives are difficulty goal setting, goal clarity, action oriented personality, circumstances oriented personality, planning knowledge, leadership knowledge, management knowledge and motivation. The results from the literature review found that Islamic finance products have contributed to the success of cooperative phenomena; thus we suggest that this variable as the contribution of knowledge in this research (Table 3).
(V)
RESEARCH HIGHLIGHTS
The study of entrepreneurial and cooperative success in Malaysia.
4
Jamilah (2011) has made a study on the level of member participation in cooperative economic activities in Malaysia. The study is only focused on consumer cooperatives, farming, housing, industry, transport and services. Credit cooperatives, banking cooperative and schools cooperative are not included in the sampling process. Zahiruddin (2011) has made a study immersing the factors that influence the success of entrepreneurs engaged in the manufacturing sector in Malaysia. The importance of this study as giving constructive views to the entrepreneurs to enhance their businesses and to contribute to the nation's economy effectively. The dependent variables studied are successful entrepreneurs, while the predictor variables in the study are goal setting, personality, knowledge and motivation .
The dependent variable is a reference adapted from "Entrepreneurs' Perception of Success Inventory" (EPSI) by (Paige, 1999) to measure the success of entrepreneurs. EPSI instruments confirm all respondents are entrepreneurs who become successful entrepreneurs and they are also choose from among the members of the top 100 co-operatives in Malaysia Credit Cooperative successfully listed among for the year 2012 issued by the Cooperative Commission of Malaysia .
Emanuel (2009) state credit cooperative activities must adapt its business with Malaysian cultural values and very important is Malaysia as an Islamic state and has a majority of Muslim population. Thus, microfinance products shall conform to the religion of Islam, where Muslims are more likely to subscribe to Islamic products over conventional products. Since March 1993, many banks and financial institutions began to introduce Interest-Free Banking Scheme (IBS) that Muslims and Malaysians can use banking services involved in usury (Muamalat 2012). According to the Malaysian Federal Constitution Article 11 states that Malaysians are entitled to choose what their religious practices, which provide opportunities for Malaysians to opt for Interest Free Banking (SPTF) to avoid being associated with riba (interest). This is in accordance to the Word of Allah S.W.T. : َّ َُّ ََ ََََ َۗ بِأَََُُّّۡۡ ََالُ او ْا إََِّّ َما ۡٱلبَ ۡي ُُ ِم ۡۡ ُُ ٱل ِّربَ ٰو ْا ُ ٱلَّ ِذينَ يَ ۡأ ٱَّلُ ۡٱلبَ ۡي َُ ََ ََ َّر َم َ ڪلُونَ ٱل ِّربَ ٰو ْا ََل يَقُو ُمونَ إِ ََّل َك َما يَقُو ُم ٱلَّ ِذى َيتَ َخبَّطُهُ ٱل َّش ۡيطَ ٰـنُ ِمنَ ۡٱل َمسِّ ۚ ََل ِل ۚٱل ِّربَ ٰو ْا “Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein.”
By creating an additional independent variable, it is considered as a contribution of Islamic finance knowledge. All the objectives are described by creating research questions and building null hepotesis in this study, hypotheses are tested by using the software "Statistical Package for Social Sciences (SPSS)" version 21.0, will ultimately contribute to the success of knowledge of credit cooperatives in Malaysia.
(VI)
RESEARCH METHODOLOGY
5
i.
Measurement of Success
Paige (1999) found that there are also other methods of evaluating the success of different from what it is in the stock market. Features such as personal freedom and joy are also a measure of success. Because the respondents are all members of the Board from among the best cooperative that has been substantially and decisively judged, then for the purpose of this study, the measure of success used are the models by Paige (1999). According to the model Paige (1999), the scale used are seven-point Likert scale adapted from the questionnaire developed by Yurkiewicz (1996), Sun (2003), Valdez (2009) and Zahiruddin (2011) with respect to Critical Success Factors Malaysian Small and Medium Industries (SMIs) in the Manufacturing Sector in Malaysia, which was adapted from the "Entrepreneurs' Perception of Success Inventory" (EPSI) by (Paige, 1999). The original items of this instrument was eight but 4 items have been dropped by the specialist officers of the Cooperative Commission of Malaysia, the Malaysian Co-operative College and the Angkatan Kebangsaan Koperasi Malaysia (Angkasa), since they are incompatible with the Malaysian Cooperative Societies Act 1993.
ii.
RESEARCH POPULATION For this study, population was highlighted from credit cooperatives of all registered cooperatives as shown in Table 1 below;
Table 1 Breakdown According To the Function of the Cooperatives in Malaysia (2010)
NO 1 2 3 4 5 6 7 8 9 10
THE MAIN ACTIVITI
NO OF COOPERATIVE
NO OF MEMERS
BANKING CREDIT AGRICULTURE HOUSING INDUSTRY CONSUMER – ADULT CONSUMER – SCHOOL BUILDING TRANSPORTATION SERVICE
2 613 1,441 118 137 1,731 2,135 134 429 1,406
813,554 1,786,508 429,559 145,823 14,467 501,765 2,086,950 38,007 145,193 638,215
TOTAL
8,146
6,600,041
Source: Suruhanjaya Koperasi Malaysia (SKM) Perangkaan Am Koperasi berdaftar mengikut Fungsi sehingga 30 Disember 2010
However, samples taken are all members of the board of credit cooperative which have been categorized in the index of 100 best of 2012, where the number of Board members is nine per credit cooperative as usual according to the Cooperative Societies Act, 1993, including the most senior staff as manager of the cooperative credit activities. He is very aware and familiar with the credit activities and participate in meetings of the Board of Cooperative members in the discussion
6
of credit activities. A total of 35 credit cooperatives managed to become the winner of a number of top 100 cooperatives in Malaysia in 2012 as shown in Table 2 below;
Table 2 : Number of selected credit cooperatives among 100 best cooperative in Malaysia according to the state in 2012
iii.
STATE
TOTAL
Kedah Kuala Lumpur Melaka NS Pahang Pulau Pinang Perak Kelantan Sabah Sarawak Selangor Terengganu Johor TOTAL
1 17 1 Tiada 1 3 2 2 1 1 1 1 3 35
Test on the content validity of the research instrument. This study used questionnaires to obtain information as a primary channel. The original questionnaire was developed by Yurkiewicz (1996), Sun (2003), Valdez (2009) and Zahiruddin (2011) in Malay Language. Kamisan (2004) has developed question survey variables for Islamic financing in English and has been changed the language to Malay Language and has been reviewed by two senior lecturers in language from the local universities. Then, the questionnaires were given to five specialist officers from the Malaysian Cooperative Commission, Co-operative College of Malaysia and the Angkatan Kebangsaan Koperasi Malaysia (ANGKASA). There were items from the original question which were not consistent with the Cooperative Societies Act of Malaysia 1993 was dropped. The suitability and accuracy of the overall mean of items to measure the study variables according to expert assessment is between 4.35 to 4.72 as shown in Table 4, above the average on a scale of 1 to 5 and can thus be concluded that the items in the questionnaire of this study is valid in terms of content, appropriateness and accuracy of the study.
iv.
FACTOR ANALYSIS TEST Factor analysis was done to obtain the reliability of research tools, SPSS will produce outputs that are measured by several indicators to measure Kaise - Meyer- Olkin ( KMO ), Barlett 's Test of Sphericity, the eigenvalues, percentage of variance explained, the loading factor, and the number of items representing the factor. Measurement values are as follows : a.
Loading factor must be no less significant than 0.3 on the respondent in excess of 200, but if the respondent is less than 200, then the value must not be less than loading factor of 0.4 (Meyer et al, 2006). Items that have a loading factor of less than 0.4, is called to have crossloading and will not be maintained in this study.
b.
KMO value should be 0.6 < KMO < 0.90 (Hair et all, 1998, Meyer et al, 2006). The values of 0.5 and below will not pass the requirements for factor analysis of variance.
7
c.
The value of Barlett's Test of Sphericity, p < .05, (Hair et al, 1998, Meyer et al, 2006) show the variables are independent and pass a screening factor analysis.
d.
Eigen value greater than 1 is significant for conditions beyond factor analysis, (Hair et al, 1998, Meyer et al, 2006).
e.
The percentage of variance explained should be around 60% of the total variance ( Meyer et al, 2006).
Table 5 shows the five conditions above the factor analysis of the variables were observed in this study (Hair et al, 1998), thus the Pearson correlation test will be conducted.
(VII)
FINDING AND ANALYSIS i.
Test –t Based on SPSS t-test (Table 3), the phenomenon of credit cooperatives success shows that there is a difference between credit cooperatives which are doing business other than the credit activity and those who just depend on credit activity ,. or in other words the success of cooperatives credit in this study are influenced by the cooperative which conduct business activities other than credit, this is in line with frequasi analysis (Table 4) , that of the 190 respondents in the Cooperative Board Members questionnaires, they give an opinion that the cooperatives profit category below 25% revenue from other businesses was 45.3% of the respondents, the remaining 54.7% (majority) of the respondents felt cooperative gains more than 25% of the total profit cooperative business contributed by other businesses (Table 5).
Jadual 3; Keputusan Ujian –t bagi fenomena kejayaan koperasi kredit berdasarkan koperasi menjalankan perniagaan lain selain dari aktiviti kredit.
Modal Luar Kejayaan Koperasi
N
Sisihan Piawai
Min
Nilai t
Ya
148
1.22
.416
Tidak
42
6.228
.5448
1.848
Table 4; Type of Side Business Done by Credit Cooperatives
Frequency
Percent
Valid Percent
Cumulative Percent
Petrol Station
21
11.1
11.1
11.1
Grocery Store
1
0.5
0.5
11.6
8
Sig. .000
Ar Rahnu
33
17.4
17.4
28.9
Contractor
1
0.5
0.5
29.5
Supplier
11
5.8
5.8
35.3
Plantation
10
5.3
5.3
40.5
Property
50
26.3
26.3
66.8
Investment / Stock
4
2.1
2.1
68.9
Tabung khairat hutang
10
5.3
5.3
74.2
Tourism
7
3.7
3.7
77.9
Not applicable
42
2.1
2.1
100.0
Total
190
100.0
100.0
Table 5 ; % of the total profit cooperative business contributed by other businesses
ii.
Cumulative
Frequency
Percent
Valid Percent
Bawah 25%
86
45.3
45.3
45.3
Antara 26%- 50%
62
32.6
32.6
77.9
Antara 50%- 75%
12
6.3
6.3
84.2
Antara 75%-100%
30
15.8
15.8
100.0
Total
190
100.0
100.0
Percent
Pearson Correlation Test Summary of Pearson correlation test for independent variables showed that seven predictor variables are having a significant relationship to the phenomenon of cooperative success (Table 9). Thus, the null hepotisis is successfully rejected; the variables are goal setting clarity, conditionoriented personality, planning knowledge, leadership knowledge, management knowledge, motivation and Islamic financing. Meanwhile, the other two variables have no significant relation to the success of credit cooperatives. There are goal setting and action-oriented personality. Thus, the null hepotisis is failed to be rejected.
iii.
Double Regretion Multiple regression analysis (stepwise) was used to determine the most dominant variables and compose a regression model for this study. The variable is a better predictor if it has a standard
9
beta coefficient higher than standard beta values of other variables. Any independent variables that are not contributed significantly to the confidence level of p