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SMEs are essential to economic growth in Malaysia and many emerging economies as they are a major source of employment and contribute towards the gross domestic product. It is therefore imperative that the corporate governance practices of SMEs are enhanced by assurance that appropriate monitoring occurs and procedures are in place. This study aims to address this issue.

The concentration of ownership in Malaysian companies results in less protection for minority shareholders. This is because the laws protecting minority shareholders mainly focus on director/shareholder conflicts and are not suited to companies with concentrated shareholdings, especially where the conflict is commonly seen between the majority and minority shareholders. Furthermore, owing to the levels of power distance, collectivism and assertiveness in Malaysia, shareholders are unlikely to litigate. The research was carried out through case analysis and analysis of extant literature and existing laws in Malaysia, to illustrate that the minority shareholders in the concentrated shareholding SMEs are not well protected.

The paper finds that current prohibitive models of law are not desirable as they have promoted compliance with the letter but not the spirit of the law.

The study focuses only on SMEs that have been incorporated.

The study enables minority shareholders to reduce fraud and self‐dealing by the majority through more direct participation in corporations, reliance on procedural protections to balance business flexibility and application of brightline rules which stand a better chance of compliance by those who understand them.

The self‐enforcing model is a non‐adjudicative mechanism of enforcement which requires substantial compliance with procedural requirements and aims for voluntary compliance. It proposes that minority shareholders and independent directors hold veto powers, thus reducing fraud and self‐dealing.

To provide arguments in favour of legalising rotating savings and credit associations (ROSCAs) as they play an important role in savings and credit for women in Malaysia.

The paper refers to previous studies on ROSCAs in Malaysia and extracts information that shows that ROSCAs are used mostly by women as a method of forced‐savings, credit and insurance against uncertainties. It suggests different methods that can be used to make ROSCAs more efficient. Finally, it provides suggestions for amendments to existing legislation which will not interfere with the social structure that supports ROSCAs, yet permit participants to sue defaulters.

The findings show that ROSCAs are widely practised in Malaysia especially in the rural and suburban areas. The participants are mostly women from middle income and low‐income groups who used it as a form of savings or credit. The benefits of permitting ROSCAs outweigh the risks. Legalising ROSCAs will not remove the benefits but will substantially reduce the risks.

This paper provides arguments to legalise ROSCAs in Malaysia and provides suggestions to ensure greater efficiency and a lower default rate. It also suggests amendments to the legislation to enable participants to take quick and cheap legal action against defaulters.