Does Intellectual Capital Explain the Financial Performance of Malaysia MFIs?

Abstract

The performance of microfinance institutions (MFIs) is crucial for ensuringthe efficient utilisation of funds deposited into the microfinance programmeby donors, as well as for assisting regulators in monitoring the institutions.Assessing the performance of MFIs involves examining its developmenttowards accomplishing its goals. Therefore, MFIs need to ascertain thechallenges to maintain their sustainability and sustain their operations.Additionally, MFIs should focus on aspects such as intellectual capital(IC) to ensure future sustainability. The aim of this research is to examinehow IC dimensions, specifically, customers, structure, human, and socialcapital, influence MFIs performance. A cross-sectional survey design wasused to gather data from 145 managers (48% response rate) from MFIs inMalaysia. In order to determine the sample size of the study, a purposivesampling method was employed. The research model was analysed byusing Partial least square-structural equation (PLS-SEM). Subsequently,the research model was validated using Smart PLS 3.2.5 and the proposedstudy hypothesis. The findings confirm that structural capital and customercapital positively influence the performance of MFIs, except for social andhuman capital. The research model explains 67.6% of the substantial amountof variance in MFIs performance. This research theoretically contributesto the extension of resource-based view (RBV) and social capital theory inDoes Intellectual Capital Explain the FinancialPerformance of Malaysia MFIs?Maryam Jameelah Hashim1, Syed Musa Alhabshi1, Nor Irvoni Mohd Ishar21Islamic Banking and Finance, International Islamic University Malaysia2Faculty of Business & Management, Universiti Teknologi MARA, Puncak Alam,Selangor, MalaysiaE-mail: jamieniz@yahoo.com, syedmusa@iium.edu.my, irvoni@salam.uitm.edu.myReceived: 5 June 2018Accepted: 18 September 20182Social and Management Research Journalpredicting the sustainability of MFIs. All the factors of IC were confirmed toimprove the performance of MFIs. This study proposed several remarkablerecommendations for microfinance institutions which suggested that MFIs’managers should resolve their organisational issues promptly. Furthermore,they should portray sensible consideration for their institutions by takingcare of IC and encouraging the practice of recognising intangible assets,especially their employees’ expertise and capabilities.