SME's Perception of The Credit Grantee

An Empirical Investigation into SMEs Perceptions of Credit Guarantee Corporation (CGC) Malaysia Berhad: A Case Study of the Islamic
Guarantee Scheme in Malaysia

Amirul Afif Muhamat* and Saadiah Mohamad** Abstract Small and Medium Sized Enterprises (SMEs) are considered the backbone of most economies, whether developing or developed, due to their contributions to national output and employment. In Malaysia, the government has formulated various strategies to enhance the development of SMEs. One such strategy resulted in the formation of the Credit Guarantee Corporation, whose responsibility is to be a loan guarantor for the SMEs. The phenomenal rise of Islamic banking and finance in the global market in recent years has prompted many financial institutions in Malaysia to start offering a line of Sharah-compliant products in their effort to tap into the latest market opportunities. SMEs now have a choice whether to take up Islamic loans and various other innovative Sharah-compliant products or to use the conventional products in financing their business. This paper reports an empirical study on the use of Islamic credit guarantee schemes among SMEs in Malaysia and analyses data from 87 respondents out of a total of 300 questionnaires sent.
Amirul Affif is a Lecturer at the Faculty of Business Management Universiti Teknologi MARA. He can be contacted at amirulafif@salam.uitm.edu.my. ** Saadiah Mohamad is professor of Economics at the Faculty of Business Management, Universiti Teknologi MARA, Shah Alam, Malaysia. She is currently an associate research fellow at the Asian Institute of Finance (AIF). She can be contacted at saadiah@aif.org.my.
ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010
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An Empirical Investigation into SMEs Perceptions of Credit Guarantee Corporation (CGC) Malaysia Berhad: A Case Study of the Islamic Guarantee Scheme in Malaysia
The study investigates factors that explain their choice of the Islamic finance guarantee scheme as opposed to conventional ones offered by the CGC, their perceptions on the quality of services provided and on the expected role of the government. The study reveals that there is still a low level of awareness and usage of Islamic guarantee schemes among the respondents. This empirical study represents an early investigation into Islamic guarantee schemes among the SMEs in Malaysia. The findings on the variables that influence their demand obtained from this study have practical implications for the government and the service providers in terms of product formulation and development, incentives, tax and policy creation. Keywords: CGC, guarantee, SMEs, iGuarantee, Islamic Finance
I. Introduction Small and medium sized enterprises (henceforth SMEs) form part of the important commercial and industrial activities in Malaysia. In their operational nature, SMEs are often small and inexperienced as compared to many larger and well established multinational companies. Therefore, banks are reluctant to lend money to SMEs as quite a substantial amount of risk is involved in SMEs lendings. (Camino & Cardone reported by Ong, Hway-Boon; Habibullah, Muzafar Shah, Radam, Alias & Azali, M., 2003, p.143). Credit risk is pervasive throughout financial markets. Traditionally, various financial institutions have assumed the burden of credit risk. Banks bear the credit risks attached to bank loans and forward contracts. Credit insurance companies have provided coverage for the commercial credit risk faced by suppliers of consumer and investment goods and services (Labourge & Schlesinger (2005, p.118). This shows that the financial institutions require a guarantor that can absorb the risks as a result of the business transactions. In Malaysia, the Credit Guarantee Corporation Malaysia Berhad (henceforth CGC) was set up to undertake this important task of being a guarantor to SMEs. CGC is one of the developmental financial institutions that work closely with the Ministry of Entrepreneur and
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Amirul Afif Muhamat and Saadiah Mohamad
Cooperation Development (MECD), and it is owned by Bank Negara Malaysia (the Central Bank, henceforth BNM) and all commercial banks and finance companies (iGuarantee portal, January 24, 2008). Despite this joint ownership, BNM has exerted significant influence on its partner institutions through the mechanism of the lending guidelines. Within the overall targets set for SMEs lending, a specified amount had to be undertaken under the CGC facilities (Boocock & Noor 2005, p.430). From its establishment in 1972 until the present time, many entrepreneurs and companies have been given credit guarantees, which contributed to the expansion of many types of businesses, from the agricultural sector to the manufacturing sector (CGCs 2006 annual report, p. 26). The value of funds that have been given out as guarantees has increased over time. The mission of CGC is to help SMEs that do not have collateral or records in securing any loan from financial institutions (CGCs 1993 Annual Report, p.13). By establishing CGC, banks can minimise risk in providing loans to SMEs, as part of the risk has been insured for a nominal guarantee fee. There are various schemes that are offered by CGC to the entrepreneurial community in Malaysia. Each scheme is different in nature and formulated to achieve and serve a particular target group or audience. As Malaysia practices dual-banking systems (conventional and Islamic banking operate alongside each other) and intends to be an Islamic financial hub in the region, CGC has come out with its Islamic schemes in order to fulfill the governments aspirations. These schemes are the Islamic Banking Guarantee Scheme and the Direct Access Guarantee Scheme (CGC 2006 Annual Report). However, since the inception of this Islamic scheme, and despite recording a positive growth for its products, the Islamic guarantee scheme has not performed as expected and has not been as competitive as the conventional guarantee scheme. This study, therefore, aims to explore the various demand conditions for the Islamic guarantee scheme with the objective of finding possible solutions for the gaps that exist in the scheme. Several identified areas of concerns that become the gist of this study are to measure the level of awareness of entrepreneurs towards the Islamic guarantee scheme, and to assess and compare the niche aspect of the Islamic guarantee scheme vis-avis the conventional guarantee scheme. Furthermore, this study also
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analyses the impact of the Islamic guarantee scheme on the SMEs that have utilised the scheme. In addition, the perceptions of entrepreneurs towards the Islamic guarantee scheme were also measured and the implementation in marketing the scheme was evaluated. Subsequently to this introduction, the next component in this paper is the research methodology used, to enlighten readers on the steps taken in conducting this study. This is then followed with a literature review of previous articles on credit guarantee in every organisation and country, the governments role, employees qualifications, perception of customers and awareness, with these items becoming the studied variables. This is followed with findings derived from the study, the conclusion and the last part is the references. A. Research Methodology This research utilises primary data assembled through questionnaires given to the local SMEs community and also to an expert CGC officer. There were 300 respondents identified from the list of SMEs which were picked randomly from every sector: primary agriculture, manufacturing (including agro-based), manufacturing related services, services, construction, mining and quarrying (National SME Development Council Report 2005, Appendix 2). Roscoe (1975) cites that a sample size of more than 30 and less than 500 is considered as good for any study. The questionnaire was designed by incorporating the 5-Likert scale method, open-ended questions, ranking scale and force choice questions which were formulated in a bilingual form (Malay and English). Furthermore, a pilot test was conducted randomly amongst 10 selected SMEs. The transcribing process of the questionnaire from Malay to English and vice versa was executed by a professional proofreader who has a doctorate in Linguistics. The verified questionnaires were then distributed randomly via mail to the identified SMEs, whose addresses were derived from the SMEs info portal. Mailed questionnaires was identified as the viable method in distributing and assessing the feedback from the respondents due to the flexibility in approaching long distance respondents. Furthermore, while the study was being conducted, the researcher was in the United Kingdom while the respondents were Malaysian
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SMEs, thus the adoption of mailed questionnaires was the best avenue. The response rate was considered encouraging (87 out of 300 respondents replied to the questionnaires) despite the period taken for distributing and collecting questionnaires being only three months, with approximately 29 respondents replying to the questionnaires per month. Nevertheless, telephone interviews were also used in this study so that any problems pertaining to the structure, process, products and operational issues of CGC could be discussed thoroughly. Secondary information such as annual reports, newspaper cuttings, magazines and journals were also used in this research. B. Literature Review This study has identified four factors: awareness, the governments role, customer perception and employee knowledge, as important variables that can influence demand and adoption of Islamic guarantee schemes offered by the CGC among SMEs in Malaysia. 1. Awareness Awareness has been mentioned many times in various marketing journals and books and is related to marketing activities. Lavidge and Steiner (1961, p.60) stated that there are six steps beginning with aware, indicate three major functions of advertising as shown in Diagram 1; (1) The first two, awareness and knowledge relate to information and ideas. (2) The second two steps, liking and preference, have to do with favorable attitudes or feelings toward a product. (3) The final two steps, conviction and purchase, are to produce action- the acquisition of the product. In this study, awareness is measured in order to gauge the level of familiarity and knowledge of the respondents regarding the CGCs Islamic guarantee scheme. As clarified by Lavidge and Steiner (1961), it is clear that awareness is an important aspect in advertising, which is part and parcel of marketing activities. It seems that if one of the steps is omitted, the public may not have a proper image of the products, services or of the organisation itself. This is applicable to what is happening in CGC, that operates as a commercial entity. As a commercial
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entity, it depends on the performance of sales and services given to the clients, thus, having a credible image is very important in order to attract and promote its products and services. Twedt (1967, p.64) suggests that a good marketing strategy should first analyse the level of consumer awareness of its brand name and services, and how the consumer responds towards it, either with a favourable or unfavourable attitude. This is important as different levels of awareness require different marketing strategies and secondly, such measurement is essential to subsequent determination of progress towards a specific marketing goal. This study hopes to provide some insights on entrepreneurs reactions towards CGC and its services, through the results derived from the questionnaire. It is worth noting that: awareness, knowledge, and development of favorable attitudes toward a specific product feature may be helpful in building a preference for the line of products (Lavidge & Steiner, 1961, p.61). Therefore, Lavidge and Steiner suggest that if CGC can engage the entrepreneurs to use its service for the first time, it can function as a stepping stone for the Corporation to sell other products to a particular client, and tie it to the Corporation. Nevertheless, the impact of not having proper awareness projection on customers can have serious consequences for a particular business organisation. This severe effect is not only on the profitability and the growth aspects of the organisation, but also affects the whole society if the organisation has an important role to play towards them, such as CGC, which is entrusted by the government to assist SMEs by guaranteeing them when obtaining financing from financial institutions. If CGC fails to help the SMEs, it means that the governments aspirations to see the SMEs expansion and growth have been unsuccessful. Several important factors influence the failure of certain products and services; he may not consider buying some brands because he has insufficient information to evaluate them, he has tried and rejected them, he has no reason to try them as he is already satisfied with the brand he is currently using, or he has some negative feedback from advertising or word-of-mouth communication (Narayana & Markin, 1975, p.2).
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2. The Governments Role Watkins (2007, p.133) states that the role of government is an important one, not simply for the development of small business, but for strengthening the impact that small business has on broad economic performance . Yeh and Vaughn Jr.(2007, p.199), on the other hand, claim that most economists argue that malfunctioning government institution constitute a severe obstacle to investment, entrepreneurship, and innovation. Cumbersome and dishonest bureaucracies may delay the distribution of permits and licenses, thereby slowing down the process by which technological advances become embodied in new equipment or new productive process. If the Malaysian government, therefore, introduces any incentives to CGC for offering Islamic guarantee schemes, then one could expect a favourable result or acceptance towards the schemes. There are various opinions whether government intervention is necessary, or if it just makes the situation worse. Green (2003, p.13) argues that some quarters consider that government intervention is necessary on the grounds that the conditions imposed on the SMEs are not fair towards them. In contrast, some people stress that the only reason government intervention can be justified is market failures, and there is an unclear connotation whether the imperfection really exists in the market, or it is just merely due to the market forces. Therefore, Green clarifies that the conditions justifying government intervention seem to be fulfilled, as asymmetric information, imperfect competition and externalities can be identified as factors affecting the credit market . Chee, therefore, states that the contribution of SMEs in Malaysia has been acknowledged since the early 1980s, and the government has introduced a variety of agencies and schemes to promote the development of this sector (Boocock & Md Nor, 2005, p. 428). Riding clarifies further that the governments motive is simply to facilitate access to debt capital for small firms (Green, 2003, p.23). Green (2003, p.24) argues that government intervention is not mandatory in a country credit system. A country credit system is defined as a financial system, particularly related to borrowings. Government intervention to help the SMEs is
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often dubbed as a subsidy, which gives rise to a bad connotation rather than a positive image. Apart from giving direct subsidies in the form of loans or grants, educating employees who are involved in small business lending activities is better, as this will help to eradicate the negative perceptions of the SMEs, reduce the administrative cost, and enhance the officers understanding of the nature of the SMEs business. For instance, Havers in his study (1996, p.146) asked 18 participants who were working in financial institutions to calculate the repayment rates from a single set of figures, and the result was that each one of them had their own solutions that implied there was no standardised system that could be used to measure the sustainability of credit programmes. Moreover, it seems common that people blame imperfections in the market as the core reasons that impede the chances of SMEs securing financial assistance from the banks. This may be true to a certain extent; however, by adhering to this reason in order to allow government intervention is really a passive method, which only creates inefficiency amongst the SMEs. It can create spoon feeding syndrome. Collateral difficulty is the most quoted reason amongst the SMEs to justify themselves when they are questioned as to why they are unable to secure financing from the banks. Thus, this means that the reformation of the credit system is necessary as a long-term solution. Government intervention with loans and grants issued can be viewed as a temporary solution. However, it cannot prevent similar problems from occurring again in future. As a consequence, turning to the government for help should be the last resort, after other alternatives have failed to realise the objectives planned. Even if government intervention is allowed, the intervention should be able to create a sense of responsibility amongst the SMEs, so that they experience the push factor that motivates them to achieve the best from the assistance given. In this study, CGC can be viewed as a form of government intervention to help SMEs to grow and expand in Malaysia. However, the assistance given by CGC is not similar to the subsidies given to the SMEs. It is important to note that CGC is a commercial entity with societal responsibilities embedded in its objectives. Therefore, every transaction approved by
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the Corporation is only made after a thorough calculative risk process. There is no such thing such as a free lunch given by the CGC to the SMEs. As a result, the entrepreneurs will be stimulated to work hard so that they can achieve good business performance, not only for their business survival, but also for repaying the offered financial assistance. In the Ninth Malaysia Plan, the government has acknowledged that they will be shifting from giving out financial assistance in the form of subsidies to performance grants, so that this will stimulate competition amongst the SMEs. Moreover, the government has stressed that priority will be given to companies that are innovative and competitive, especially in the strategic industries (Asokkumar, 2006, p.1). Thus, it can be summed up that the role of the government in Malaysia is to help SMEs based on merit or performance rather than by giving monies (loans) or assistance blindly. 3. Customer Perception Customers perception is another important issue to be considered, which changes with time and, hence, is dynamic (Recklies, 2006). The relationship built between the seller and the customers will shape its direction; either it becomes favourable or the bond ends sooner than expected. Furthermore, the experience gained by the customers over time, and the changes in the circumstances. will influence their perceptions about the particular issue, product or service. The quality of a particular service is derived from what the customers want, which is through their perceptions (Kangis & Voukelatos, 1997, p.279). One of the important aspects of perception is that it can influence the customers actions towards a particular brand name, which in turn will shape their post purchase behaviour (Jackie, 2007, p.281). In the context of CGC, creating a positive perception amongst the public, particularly towards the SMEs community is highly critical, as they are the target market of the Corporation. The perception of CGC is not only about its products and services, but also encompasses everything about the organisation, staff, management, its track record, and also word of mouth about CGC. Wright and Lundstrom, therefore, state that there are many factors that play a role in determining
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a brand/product perceived quality including price, store image, distribution intensity, advertising spending, and price deals (2007, p.79). Berry states that brand plays a critical role in marketing services as the customers perceptions are derived from their impression of the brand and its associations. But the ultimate factor is the experience from the service itself (O Loughlin et al., 2004, p.218). Chatterjee (2007, p.59) substantiates this by suggesting that there is considerable research indicating that differences in framing and timing of price reductions can change consumers perception of the promotion offer, purchase decisions and purchase satisfaction. We can relate this to CGCs Islamic guarantee scheme: if the customers see or think that Islamic guarantee schemes possess unique characteristics compared to conventional guarantee schemes, this can lure them to utilise the Islamic guarantee schemes. The unique aspects can be in many forms, such as government tax incentives, lower fees for Islamic guarantee schemes, or higher loan amounts. This is supported by Jackie by stating that effective management of customer expectations not only can increase the likelihood of the purchase of a financial service, it can also influence customer satisfaction and a customers relationship with a financial provider (2007, p.282). Hence, higher utilisation of Islamic guarantee schemes will increase their performance, which will be translated into the increased amount of guarantees issued under the banner of the Islamic guarantee scheme, or this may happen as a result of the higher value of guarantees given to the SMEs. 4. Employees Knowledge The rapid development in the Islamic banking industry has created a gap in the industrys workforce, which is a part of the important components of the financial services industry. Therefore, in order to overcome this situation, as a temporary measure, staff who work for the conventional banking sector have been hired to fill up the vacancies in the Islamic financial institutions (Mansoor & Ishaq, 2008, p.48). This may work temporarily; however, in the long term it is not the best solution, unless the employees are given sufficient training in Islamic banking, so
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that they can comprehend and embrace the objectives and values related to Islamic banks. Although there are several reputable Malaysian institutions offering Islamic banking and finance courses, such as the Institute of Islamic Banking and Insurance (IIBI), the International Centre for Education in Islamic Finance (INCEIF), and the International Islamic University, Malaysia (IIUM). However, such attempts will not give a holistic impact as is expected to happen in the industry if the Islamic banks do not make some investment into the development of their internal human capital, who will be dealing with the daily challenges of the industry. Previously, some issues were raised by customers when the bank staff were unable to explain clearly the difference between Islamic banking and conventional products. Moreover, they were very skeptical, and said that both products were similar. This attitude will dissuade the interest of potential customers who may want to utilise Islamic banking products due to inaccurate and misleading advice. However, the steps taken by the Central Bank to transform Islamic windows to Islamic subsidiaries may eliminate the problem (Rosly, 2005). However, this is not the case with CGC as the products offered by the Corporation are side by side and handled by the same officers, whether they are conventional or Islamic guarantee schemes. Thus, the question is how to promote the Islamic guarantee schemes vis-a-vis conventional guarantee schemes?
II. Findings As shown in Table 1, 87 respondents participated in the survey, coming from various religious backgrounds. The majority of respondents were 68 Muslims (78.2%), followed by 11 Buddhists (12.6%), five Christians (5.7%) and three Hindus (3.4%).
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Table 1: Demographic of the Respondents - Religious Backgrounds

Religious backgrounds Islam Valid Buddhist Hindu Christian Total Frequency 68 11 3 5 87 Percent 78.2 12.6 3.4 5.7 100.0
This section attempts to determine the respondents awareness and perceptions of the Islamic guarantee scheme provided by CGC and Islamic finance in general, as shown in Table 2. The questions are constructed in the form of a 5-point Likert scale; 1 - strongly disagree, 2 - disagree, 3 - neutral, 4 - agree and 5 - strongly agree.
Table 2: Descriptive Analysis of Awareness and Perceptions amongst the Respondents
Questions B3. I agree that the information on Islamic guarantee schemes is widespread amongst the SMEs community. B4. I know there is a difference between Islamic guarantee schemes and conventional guarantee schemes. B5. I will always use financing based on Islamic principles whenever possible. C1. I suppose there is difference between Islamic guarantee schemes and conventional guarantee schemes in terms of credit facilities. C2. I feel that the Islamic guarantee scheme will add value to my business. C4. I think that CGC has done a good job in promoting the Islamic guarantee scheme. Valid N (listwise) N 87 87 87 87 87 87 87 Mean 2.9310 3.9195 3.8851 4.0230 3.5747 2.8276 Std. Deviation 1.10804 .93035 .92038 .77725 .84402 .89191
As can be seen, there are 87 respondents for these questions. The first question (B3) is intended to gauge the respondents opinions on the availability of information pertaining to the Islamic guarantee scheme provided by CGC. The finding shows that most of the respondents feel that the scheme is not properly marketed or promoted, which has resulted in a less informed SMEs community of the services, as indicated by the mean result 2.93.
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The next question (B4) attempts to measure the respondents understanding of the differences between Islamic and conventional guarantee schemes. It appears that most of the respondents agree that there is a difference between conventional and Islamic guarantees, as the mean result is 3.92. This is very interesting because the result has contradicted the findings in the previous question, B3, that indicate a less informed SMEs society about the Islamic guarantee scheme provided by CGC. Subsequently, question B5 measures the willingness of the respondents to use any form of financing based on Islamic principles. Most of them agree and are willing to use the financing that is based on Islamic principles if this kind of financing is available, as evidenced by the mean value of 3.89. The next question, C1, aims to assess the respondents view on the credit facilities offered by the Islamic and conventional schemes and whether there is a difference between the schemes. The mean result is 4.02 and strongly indicates that the respondents do feel that there is a difference in term of credit facilities offered by the two schemes. This result is in sync with the previous results in questions B4 and B5. When the respondents are asked about their perceptions on whether the Islamic guarantee scheme would add value to their businesses (question C2), their responses are generally neutral, although it can be argued that there is a tendency for the respondents to agree with the statement, as indicated by the mean value of 3.57. The answers given to the last question in this section (C4) show an unfavourable response towards the statement that the Corporation has done a good job in promoting the Islamic guarantee scheme, with a mean result of 2.83. The result mirrors the previous question in B3 that concerns the level of awareness amongst the SMEs entrepreneurs in relation to the Islamic guarantee scheme. B. Respondents Perceptions of the Knowledge of Bank Staff Referring to Table 3, generally the questions in this section assess the perceptions of the participants about the qualifications of the employees working in the Islamic finance industry and their attitudes towards the entrepreneurs and potential clients based on the respondents experiences in dealing with the staff, opinions, and their
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expectations of the services they should receive when liaising with the staff. The questions are designed in the form of a (5-point) Likert scale. The mean result is 4.16 in the first question D1, which implies that most of the respondents agree that qualified and resourceful staff in Islamic finance will add credibility and a positive image of both the employee and the company and thus, will enhance the clients confidence in the company and its services. This can be treated as a pulling factor for the clients to engage in the products and services. The next question (D2) is more about gauging the respondents experiences when personally dealing with staff concerning Islamic financial products and services, and identifies whether staff can explain succinctly and satisfy the clients with the explanations given. The mean indicates 3.57, demonstrating that generally the respondents neither agree nor disagree with the statement, but there is a tendency towards agreement. The mean outcome of 4.31 of the third question (D3) confirms that every time the respondents deal with the financial institution, they expect the staff to have a good understanding or knowledge of the products and services and to be able to serve them to the maximum possible extent. Progressing to question D4, the mean result is 2.56, which indicates that the majority of the respondents rejects the statement that officers on some occasions are biased towards Islamic financial products by informing the clients that there is no difference between Islamic and conventional financial products. This result confirms the outcome in question D2. Moving on to the fifth question, which requests the respondents to rate the services received when dealing with the institutions, most of them chose to be neutral, and this is indicated by the mean result of 3.43. The last question in this section (D6) evaluates the importance of the staff to the clients in the Islamic financial institutions. Thus, when the question states that the client does not require advice from the staff, most of the respondents rejected this statement, as indicated by the mean value of 2.59.
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Table 3: Descriptive Analysis of Employees Knowledge

Questions D1. I feel more confident liaising with staff who have comprehensive understanding of Islamic finance and banking. D2. The officer could explain about Islamic guarantee schemes well whenever I asked him. D3. When I am liaising with the CGCs or banks officer, I assume that he/she has sufficient knowledge about the products. D4. The officer on some occasions told me that there is no difference between Islamic guarantee schemes and conventional guarantee schemes. D5. How do you rate the service and advice given by the officer on Islamic guarantee schemes? D6. I do not need the advice as I can decide myself. Valid N (listwise) N 87 Mean 4.1609 Std. Deviation .69673
87
3.5747
.70928
87
4.3103
.73628
87
2.5632
.87206
87 87 87
3.4253 2.5862
.64035 1.07348
C. Governments Role and Its Impact on Awareness, Perceptions and Employees Qualifications In this section, the analysis is divided into four segments: the governments role, the governments role in enhancing employees qualifications, the governments role in enhancing the awareness of Islamic CGS, and the governments role in perceptions of the Islamic guarantee scheme. The questions are in the form of a Likert scale. (i) The governments role As indicated in Table 4, the majority of the respondents are neutral towards the first question (E1) in this section, whereby the mean result is 3.06. They in general neither agree nor disagree about the effort that has been expended by the government in order to promote and encourage entrepreneurs to employ the Islamic guarantee scheme provided by CGC. The result is also in sync with the outcomes derived from questions B3 and C4 which generally agree that the information about CGC is not widespread enough amongst the SMEs community.
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The second question, E2, exhibits a mean result of 2.94 that implies that most of the respondents do not agree that any scheme introduced by the government into the market for the entrepreneurs is suitable for them. Despite the mean value showing that the majority of the respondents do not agree with this statement, the magnitude of the mean is closer to the neutral point, which implies that some of the respondents chose to be neutral on this issue. The next question (E3) focuses on the involvement of the government in supervising the management of CGC, particularly in the Islamic finance industry. That the presence of the government will enhance the image of the institution and its products amongst the public is supported by the majority of the respondents, as evidenced by a mean value of 4.05. In question E4, this study aims at identifying the participants perceptions of the governments actions in promoting both Islamic and conventional banking (consisting of the guarantee scheme) systems. The findings indicate a mean value of 3.56 implying that most of the respondents are neutral on this issue, but the degree of the mean is nearer to the point of agreement on some occasions.
Table 4: Descriptive Analysis of the Governments Role
Questions E1. The government has done a good job in helping Islamic guarantee schemes grow in this country. E2. Any scheme that is supported by the government means that it is a good scheme to me. E3. Government involvement will increase the credibility of Islamic guarantee schemes amongst the public particularly, the SMEs. E4. Sometimes I get confused when I see that the government is trying to promote Islamic and conventional guarantee schemes simultaneously. Valid N (listwise) N 87 87 87 Mean 3.0575 2.9425 4.0460 Std. Deviation .84021 .78290 .76109
87 87
3.5632
.83110
(ii) The governments role in enhancing employees qualifications As can be seen in Table 5, the mean result for question E5 is 4.26 and this indicates that most of the respondents agree that having sufficient knowledge of Islamic finance is highly crucial
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for those who work in the banking and financial institutions. Furthermore, the respondents believe that the government can play the main role in this matter by enforcing regulations that require every institution that offers Islamic banking services to provide sufficient training to their staff. The result for question E6, is a bit different from E5. The previous result confirms that most of the respondents agree that the government should play a fundamental role in ensuring that the industry has knowledgeable workers in Islamic finance. However, in E6 with a mean result of 3.60, the majority of the respondents is closer to neutral and views the move taken by the government to establish specific learning centres for Islamic finance as insignificant and unnecessary. Nevertheless, the magnitude of the mean is very close to the point of agreement with the questionnaire statement.
Table 5: Descriptive Analysis of the Governments Role - Employees Qualifications
Questions E5. I believe that the government should make it compulsory for staff who work in the Islamic finance and banking sector to have appropriate knowledge in the field. E6. The move taken by the government to establish institutions that offer qualifications in Islamic finance will increase the efficiency and knowledge of the employees. Valid N (listwise) N 87 Mean 4.2644 Std. Deviation .73863
87 87
3.5977
.72272
(iii) The governments role in enhancing awareness As depicted in Table 6, the mean result for question E7 is 3.77, and this indicates that a majority of the respondents neither agree nor disagree with the statement that the governments policies have contributed to their awareness of Islamic finance. Nevertheless, the degree of the mean is very close to the point of agreement with the statement. This result may be explained by the majority of the respondents failure to follow the national news, especially on government policies. Therefore, they chose to be neutral on this issue. The next outcome in question E8 confirms the previous result in E7, as the respondents chose to be neutral on whether the government gives incentives to entrepreneurs using the Islamic guarantee scheme.
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Table 6: Descriptive Analysis of the Governments Role - Awareness

Questions E7. Government initiatives to promote Malaysia as a regional financial hub in the Islamic finance and banking industry have raised my awareness of the Islamic financing products. E8. I know that the government has given many incentives to the entrepreneurs who use Islamic guarantee schemes. Valid N (listwise) N Mean Std. Deviation .80263
87
3.7701
87 87
3.1494
.80013
(iv) The governments role in the development of perception of Islamic CGS Table 7 below shows the mean result of 4.13 for question E9, which means that the majority of the respondents agree that if more incentives are given to those who use the Islamic guarantee scheme, this may stimulate the entrepreneurs desire to engage these services. The next question (E10) is constructed in negative wording, so that the researcher may know whether the respondents answer the questionnaire truthfully or vice versa. The outcome of the mean is 2.68, signifying that a large number of respondents do believe that the programme initiated by the government to promote the Islamic guarantee schemes will produce some positive results. This result is supported by previous outcomes, especially in questions B3 and C4, which demonstrate that a majority of the respondents are looking for information on Islamic guarantee schemes. The mean of the next question E11 is at 4.00, indicating that most of the respondents have faith in the governments programmes, particularly on Islamic finance.
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Table 7: Descriptive Statistics on the Governments Role - Perception

Questions E9. I think if more incentives are given to Islamic guarantee scheme clients, it is likely that more entrepreneurs will utilise the services. E10. I believe that the programme initiated by the government to promote Islamic guarantee schemes is indifferent to me. E11. The more programmes organised by the government on Islamic financing, the more confident I am to utilise the Islamic guarantee scheme. Valid N (listwise) N 87 Mean 4.1264 Std. Deviation .71210
87
2.6782
.89565
87 87
4.0000
.73136
D. Perceptions on Training and Education of Bank Employees Question D7 asks the respondents to rank the importance they attribute to the identified institutions in terms of their responsibility in increasing the qualifications of bank staff working in the Islamic banking sector. The mean value method is adopted in the study to measure the importance of each party and the results are depicted in Table 16.
Table 8: The Mean Ranking of Parties in Terms of Employees Qualification
Government Employers Employees Banks or financial institution associations 2.73 Consumer Associations 4.29
2.01
2.45
3.52
The results show that consumer associations is chosen as the most important party that should work for the improvement of the qualifications of employees who work in this sector. The employees factor occupies the second rank, followed by the banks or financial institution associations, the employers and the government. The result is strengthened by the results produced by the non-parametric tests Kendalls Tau as shown in Tables 17 and 18. The explanation derived from the results implies that for each answer chosen by the respondents, there is a correlation from one answer to another. The
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significance level shows the strength of correlation between the answers given. For example, in Table 16, the respondents answering D7-1 have the tendency to choose D7-2 as well, as a supplementary answer to the previous one. The next answers also show a similar pattern.
Table 9: Correlation Analysis in Terms of Employees Qualification
D7-1 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (1st Rank) D7-1 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (1st Rank). Kendalls tau_b D7-2 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (2nd Rank). Correlation Coefficient Sig. (2 tailed) 1.000 . D7-2 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (2nd Rank) -.314** .001
87
87
Correlation Coefficient Sig. (2 tailed)
-.314** .001
1.000 .
87
87
**. Correlation is significant at the 0.01level (2-tailed)
Table 10: Correlation Analysis in Terms of Employees Qualification
120
D7-3 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (3rd Rank) D7-3 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (3rd Rank) D7-4 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (4th Rank) D7-5 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (5th Rank) Correlation Coefficient Sig. (2 tailed) 1.000 .
D7-4 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (4th Rank) -.351** .000
D7-5 If you think that staff should further be trained, how do you rank in terms of responsibility to increase employees qualifications in Islamic finance and banking (5th Rank) -.333** .000
87
87
87
-.351** .000
1.000 .
.008 .932
Kendalls tau_b
87
87
87
-.333** .000
.008 .932
1.000 .
87
87
87
**. Correlation is significant at the 0.01level (2-tailed) Table 11: One-Sample Test on Number of Employees versus the Availability of Information
Test value = 0 Sig. (2-tailed) Mean Difference 95% Confidence Interval of the Difference Lower Do you agree that the information on Islamic guarantee schemes is widespread enough amongst the SMEs community? 24.673 86 .000 2.93103 2.6949 Upper 3.1672
df
Referring to Table 19, it shows that the responses to question B3
121
produce a significant result (t (86) = 24.67, p<.05) when the OneSample Test is run, and the results substantiate the results in Table 6.33 on the same issue. Therefore, this implies that the concentration of answers by the respondents to the particular question is moderate, as many of them disagree or are neutral in their feedback to the question. Moreover, it can be stated that the importance of information on the Islamic guarantee scheme is paramount. E. Perception of the Governments Actions and Initiatives Regarding the Guarantee Scheme In order to test the significant difference in mean values within categories and variables in locating the respondents perceptions of the governments actions and initiatives regarding the Islamic CGS, ANOVA and k Independent Samples tests are incorporated in the study. The results indicate that there is no significant difference from the response received from various factorial groups due to the mean values being very close to each other. For instance, a result from a series of ANOVA tests is shown in Table 20.
Table 12: Analysis of Variance on the Effect of the Governments Action on the Promotional Aspect for Both Schemes
Sometimes I get confused when I see that the government is trying to promote Islamic and conventional guarantee schemes simultaneously. Sum of Squares Between groups Within groups Total 1.196 58.207 59.402 df 3 83 86 Mean Square .399 .701 F .568 Sig. .637
The results in Table 20 above indicate that there is no significant outcome (since > 0.05) at 95% as the confidence level for the statement that government promotion strategies cause confusion amongst the respondents. This outcome is further strengthened by the result achieved in the K Independent Samples test as illustrated in Tables 21 and 22.
122
Table 13: K-Independent Sample Test on the Effect of the Governments Action on the Promotional Aspect for Both Schemes (based on number of employees)
Number of employees Less than 5 employees Sometimes I get confused when I see that the government is trying to promote Islamic and conventional guarantee schemes simultaneously. Within 5-19 employees Within 20-50 employees Within 51-150 employees Total N 32 32 15 8 87 Mean Rank 43.95 49.66 37.73 33.31
Table 14: K-Independent Sample Test on the Effect of the Governments Action on the Promotional Aspect for Both Schemes (based on number of employees) Test Statistics a,b
Sometimes I get confused when I see that the government is trying to promote Islamic and conventional guarantee schemes simultaneously. Chi-Square df Asymp. Sig. 4.569 3 .206
a. Kruskal Wallis Test b. Grouping Variable: A4 Size of Employees In Table 21, the result shows that the difference of each variable is very small between one and another, thus influencing the significance of the analysis, as described in Table 6.37, and this signifies the insignificant outcome of the analysis (since > 0.05).
Table 15: One-Sample Test on the Governments Initiatives and the Consequence
Test value = 0 Sig. (2-tailed) Mean Difference 95% Confidence Interval of the Difference Lower Government initiatives to promote Malaysia as a regional financial hub in Islamic finance and banking industry have raised my awareness of the Islamic financing products. Upper
df
43.813
86
.000
3.77011
3.5991
3.9412
123
The respondents are asked to express their opinions on the governments initiatives in promoting Malaysia as a regional hub in Islamic finance and banking and whether this has contributed to the individual respondents awareness of Islamic finance products. Table 23 shows that a One-Sample Test is run for question E7, and it produces a significant result (t (86) = 43.81, p<.05) with the difference between the lower and upper interval being very small. This means that most of the respondents prefer to be neutral or closer to an agreement position based on their response to this particular question. Furthermore, it can be stated that the initiatives taken by the government to promote Malaysia as a regional hub for Islamic banking are important in creating awareness amongst the public.
Table 16: One-Sample Test on the Governments Initiatives and Its Impact on Respondents
Test value = 0 Sig. (2-tailed) Mean Difference 95% Confidence Interval of the Difference Lower I believe that the programme initiated by the government to promote Islamic guarantee schemes is indifferent to me. 27.891 86 .000 2.67816 2.4873 Upper 2.8691
df
Table 24 above depicts the results of the analysis to measure the level of interest or indifference to programmes initiated by the government to promote Islamic CGS. The results of the One-Sample Test shows a significant outcome (t (86) = 27.89, p<.05) implying that the activities organised by the government to promote the Islamic guarantee scheme will influence the respondents perceptions and behaviour towards the Islamic guarantee scheme and hence they are not particularly insignificant. Furthermore, the result also indicates that the difference between the upper and lower interval is small and a majority of the respondents tends to opt to disagree with the statement (as the statement is a negatively worded question).
III. Conclusion The study indicates that the reputation of CGC amongst the SMEs community is well known, but the information on the products,
124
particularly on the Islamic credit guarantee scheme, is very scarce and not widespread enough amongst entrepreneurs. The mediocre performance of the Islamic guarantee scheme as compared to its conventional counterpart illustrates the disparity of the scheme despite growth in the Islamic guarantee schemes performance. Generally, most of the entrepreneurs, both Muslim or nonMuslim, are willing to utilise the Islamic guarantee scheme when it comes to securing guarantees for financing, if only information on the scheme is available and the features of the scheme are distinguishable compared to the conventional scheme. Furthermore, their awareness of Islamic banking and finance is generally good due to the efforts made by the government in promoting the industry. Thus, the Corporation should capitalise on this advantage by leveraging on product development and by intensive promotion of their Islamicbased products. However, the lack of information on, and promotional aspects of, the Islamic guarantee scheme requires CGC to do some aggressive marketing if it is really serious about increasing the adoption of Islamic guarantee schemes. In the first place, CGC needs to resolve how it wants to position the Islamic guarantee schemes: does it want to target only Muslim entrepreneurs or does it want the Islamic products to add to its range of products available to customers regardless of religious faith? Even though the government has been the backbone of the development in Islamic finance and banking in Malaysia, there are issues particularly on the public understanding of the governments policies and actions in several financial matters. The implementation of a dual banking system, although giving flexibility, encouraging competition and efficiency, also creates confusion, particularly to those who are isolated from information on the countrys economy and banking. This isolation may be due to ignorance, attitude, low level of education, time constraints to get information, etc. Some suggestions to the management of CGC to develop the Islamic guarantee schemes are: establishing separate divisions that will manage the Islamic guarantee schemes independently, opening one-stop-centres in every district in Malaysia, and hiring the best talents who have sufficient knowledge in Islamic finance. The creation of separate divisions in managing Islamic guarantee schemes
125
will promote competition between the Islamic guarantee and its conventional counterpart. The key performance index (KPI) of each staff will be based on the number of Islamic guarantees that have been utilised by their clients. This is similar to the practice of Islamic banks in evaluating their sales force vis-a-vis the sale of Islamic banking products. Subsequently, this will eliminate the complacency possessed by some CGC staff due to the fact that their performance does not have a direct relationship with the performance of the Islamic guarantee scheme. The opening of one-stop-centres in every district will reduce the travelling distance of prospective clients, especially for SMEs entrepreneurs who reside in rural areas. Furthermore, this will facilitate better contact between CGC and the entrepreneurs, and hence will increase their awareness pertaining to CGCs functions and the availability of Islamic guarantee schemes. In addition, the presence of knowledgeable staff in Islamic finance is an excellent investment for CGC since they are not only able to execute their tasks diligently but will also help in eradicating the bias towards the Islamic guarantee schemes. The bias occurs due to negative perception towards Islamic financial products caused by limited knowledge or experience when seeing that the Islamic financial products are indifferent to conventional products. This case study on CGC and its dual offering of Islamic products alongside the conventional guarantee schemes provides an illustration of this. Nevertheless, the Malaysian experience of the dual system has provided many advantages compared to the more revolutionary complete adoption of a total Islamic system such as in Sudan and Pakistan. As this scenario is going to persist in future, the way forward for CGCs Islamic guarantee scheme lies in marketing and promotion as well as management of customer perception.
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References
About CGC. (2007). Available at <URL: https://www.iguarantee.com.my/iguarantee/ company_info.htm>. Access Date: January 24, 2008. Access Date: August 6, 2008. Asokkumar, M. (4-5 September 2006). Global Positioning of Malaysias Small and Medium Enterprises and the Effectiveness of Governments Promotional Initiatives. National Statistics Conference 2006. Department of Statistics Malaysia, pp. 1-53. Boocock, Grahame & Shariff, Mohd Noor Mohd. (2005). Measuring the Effectiveness of Credit Guarantee Scheme - Evidence from Malaysia. International Small Business Journal, 23(4), 427-454. Camino, David & Cardone, Clara. (1999). The Valuation and Cost of Credit Insurance Scheme for SMEs: The Role of the Loan Guarantee Associations. International Small Business Journal, 17(4), 13-31. Chatterjee, Patrali. (2007). Advertised versus Unexpected Next Purchase Coupons: Consumer Satisfaction, Perception of Value and Fairness. Journal of Product and Brand Management, 16(1), 59-69. Credit Guarantee Corporation Malaysia Berhad. (1993/2005/2006). CGC Annual Report. Retrieved from https://www.iguarantee.com.my/iguarantee/company_ info.htm Green, Anke. (2003). Credit Guarantee Schemes for Small Enterprises: An Effective Instrument to promote Private Sector-Led Growth? SME Technical Working Paper No. 10, pp.1-84, under Program Development and Technical Cooperation Division, Small and Medium Enterprise Branch at United Nations Industrial Development Organization. Havers, Mark. (1996). Financial Sustainability in Savings and Credit Programmes. Development in Practice, 6(2), 144-150. Kangis, Peter & Voukelatos, Vassilis. (1997). Private and Public Banks: a Comparison of Customer Expectations and Perceptions. International Journal of Bank Marketing, 15(7), 279-287. Khan, M. Mansoor & Bhatti, M. Ishaq. (2008). Development in Islamic Banking: a financial risk-allocation approach. Journal of Risk Finance, 19(1), 40-51. Labourge, Henri & Schlesinger, Harris. (2005). Coping with Credit Risk. Journal of Risk Finance, 6(2), 118-134. Lavidge, Robert J. & Steiner, Gary A. (October, 1961). A Model for Predictive Measurements of Advertising Effectiveness. Journal of Marketing, 59-62. Narayana, Chem L. & J. Markin, Rom. (October, 1975). Consumer Behavior and Product Performance: An Alternative Conceptualization. Journal of Marketing, 1-6. OLoughlin, Deirdre et al. (2004). Branding and relationships: Customer and Supplier Perspective. Journal of Financial Services Marketing, 8(3), 218-230. Ong, Hway-Boon; Habibullah, Muzafar Shah, Radam, Alias & Azali, M. (2003). Evaluating a Credit Guarantee in a Developing Economy: A Non-Parametric Approach. International Journal of Social Economics, 30(1/2),143-152. Recklies, Dagmar. (2006). Understanding and Managing Customer Perception. <URL: http://www.themanager.org/Marketing/Customer_Perception.htm>. Access Date: August 29, 2008.
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Rosly, Saiful Azhar. (31st October 2005). From Windows to Subsidiary for Islamic Banking. Malaysian Institute of Economic Research (MIER), pp. 1-5. Tam, Jackie. L. M. (2007). Managing Customer Expectations in Financial Services: Opportunities and Challenges. Journal of Financial Services Marketing, 11, 281-289. Warren Twedt, Dik. (Oct., 1967). Journal of Marketing, 31(4), Part 1, 64-66. Watkins, Boyce D. (2007). On Government Programs that Increase Small Firms Access to Capital. Journal of Small Business Management, 45(1), 33-136. Wright, Robert W. & J. Lundstrom, William. (2007). Do Government Subsidized Programs Effect Perceived Product Quality and Brand Equity? Journal of Academy Business and Economics, 7(2), 78-82. Yeh, Chiou-nan & Vaughan Jr., Percy J. (2007). Government Efficiency and Economic Growth. International Atlantic Economic Society, 399-400.
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SME's Perception of The Credit Grantee

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An Empirical Investigation into SMEs Perceptions of Credit Guarantee Corporation (CGC) Malaysia Berhad: A Case Study of the Islamic

Guarantee Scheme in Malaysia

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Table 1: Demographic of the Respondents - Religious Backgrounds

Amirul Afif Muhamat and Saadiah Mohamad

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

Table 3: Descriptive Analysis of Employees Knowledge

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

Table 6: Descriptive Analysis of the Governments Role - Awareness

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

Table 7: Descriptive Statistics on the Governments Role - Perception

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Correlation Coefficient Sig. (2 tailed)

**. Correlation is significant at the 0.01level (2-tailed)

Table 10: Correlation Analysis in Terms of Employees Qualification

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

Correlation Coefficient Sig. (2 tailed)

Correlation Coefficient Sig. (2 tailed)

Referring to Table 19, it shows that the responses to question B3

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

Amirul Afif Muhamat and Saadiah Mohamad

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

ISRA International Journal of Islamic Finance Vol. 2 Issue 2 2010

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