Abstract Energy poverty and lack of electricity in rural areas exacerbate the poverty of the developing countries. In Malaysia, 3.8% of the population lives below the poverty line and most of them are settled in rural areas. The electricity coverage in poor states is about 79% in comparison with 99.62% in Peninsular Malaysia. The renewable energy sources can be considered the best alternative to reduce the energy poverty of the rural areas where the grid extension through a difficult terrain and thick jungle is not possible or economic. In this study, the potential for applying renewable sources – solar, wind and hydropower – for rural electrification is investigated, especially in the poorest States. A comparative study on rural electrification policies, in order to have community approval, appropriate siting and financial benefits for the rural community, while considering the three categories of social, institutional and economic issues, is also examined. Finally, the Malaysian policies of rural electrification by applying renewable sources are explained. It is found that in Malaysia, with a maximum solar radiation of about 6.027 kWh/m2 per day in Sabah and 5.303 kWh/m2 per day in Sarawak, the potential for applying solar energy for electrification is too high. However, the potential for micro-hydropower in Sabah and Sarawak is found to be 3182 kW and 6317 kW through 18 and 22 sites, respectively.