financial system in malaysia

TOPIC 2FINANCIAL SYSTEM

IN MALAYSIA

BANKING SYSTEMSBanking system in Malaysia consists of:

The banking system is the largest component of the financial system, accounting for about 67% of the total assets of the financial system.

Bank Negara Malaysia (BNM)

• Bank Negara Malaysia (BNM)• established on 26 January 1959, under the Central Bank of

Malaya Ordinance 1958.Objectives of BNM• To issue currency and keep reserves to safeguard the value of the currency;• To act as a banker and financial adviser to the Government;• To promote monetary stability and a sound financial structure; and• To influence the credit situation to the advantage of Malaysia.

The introduction of the Banking and Financial Institutions Act 1989 (BAFIA) on 1 October 1989 extended BNM’s powers for the supervision and regulation of financial institutions and deposit-taking institutions who are also engaged in the provision of finance and credit.

Roles and Functions of Central Bank (BNM)

COMMERCIAL BANKSAn institution which accepts deposits, makes business loans, and offer

related services.

The main functions :• Retail banking services such as the acceptance of deposit, granting of

loans and advances, and financial guarantees;• Trade financing facilities such as letters of credit, discounting of trade

bills, shipping guarantees, trust receipts and Banker’s Acceptances;• Treasury services;• Cross border payment services; and• Custody services such as safe deposits and share custody.

INVESTMENT BANK/DEVELOPMENT BANKS

Merchant banks emerged in the Malaysian banking scene in the 1970s, making an important milestone in the development of the financial system alongside the corporate development of the country. They play a role in the short-term money market and capital raising activities including financing, specialising in syndication, corporate finance and management advisory services, arranging for the issue and listing of shares, as well as investment portfolio management.

There are currently 12 merchant banks in Malaysia.

INVESTMENT BANK/DEVELOPMENT BANKS

ISLAMIC BANKS

The banking activities of Islamic banks are based on Syariah principles (the Islamic principles). The first Islamic bank established was Bank Islam Malaysia Berhad, which commenced operations on 1 July 1983. On 1 October 1999, a second Islamic bank, namely Bank Mualamat Malaysia Berhad was established. Apart from Islamic banks, other financial institutions also offer Islamic banking services through the “Islamic Banking Scheme”.

In Malaysia, separate Islamic legislation and banking regulations exist side-by-side with those for the conventional banking system. The legal basis for the establishment of Islamic banks was the Islamic Banking Act (IBA), which came into effect on 7 April 1983. The IBA provides BNM with powers to supervise and regulate Islamic banks, similar to the case of other licensed banks.

ISLAMIC BANKSThe main objective of an Islamic Bank is to Prohibit Muslims from dealing with interest or usury (Riba) which has been from dealing with interest or usury (Riba) which has been strictly prohibited by Allah and to protect them from one of the biggest sins.

ISLAMIC BANKS

INTERNATIONAL BUSINESS FINANCIAL CENTRE (IBFC)

Labuan is located off the north west coast of Borneo and is home to Malaysia’s International Business and Financial Centre (IBFC). Declared an international business and financial centre in 1990, Labuan IBFC has steadily grown in reputation and financial standing over the years.

Labuan Financial Services Authority or Labuan FSA is a statutory body set up under provisions of the Labuan Financial Services Authority Act 1996, as a one stop supervisory and regulatory body for Labuan IBFC.

Labuan FSA subscribes to international standards and best practices in financial services and prudential regulation. To ensure the jurisdiction remains competitive, the entire legal structure supporting Labuan IBFC was reviewed in 2010, providing Labuan FSA the scope and authority to further expand and deepen the range of financial intermediation available in Labuan.

INTERNATIONAL BUSINESS FINANCIAL CENTRE (IBFC)

Labuan FSA is guided by the following objectives:-

INTERNATIONAL CURRENCY BUSINESS UNIT(ICBU)

An International Currency Business Unit (ICBU) of a licensed institution, namely Islamic bank, commercial bank and investment bank, is permitted to conduct a wide range of Islamic banking business under the Islamic Banking Act 1983 (IBA) or Islamic banking business under Section 124 of the Banking and Financial Institutions Act 1989 (BAFIA) in international currencies1 other than Malaysian ringgit. The income arising from the transactions of the ICBU is eligible for full tax exemption accorded under the Income Tax Act 1967 for ten years from the year of assessment 2007.


The following entities are eligible to apply for approval to establish an ICBU: (i) An Islamic bank which is licensed under the IBA; (ii) A bank licensed under the BAFIA (referred to in these Guidelines as “commercial bank”); and (iii) A merchant bank licensed under the BAFIA and holds relevant licences under the securities laws2 to carry on investment banking business (referred to in these Guidelines as “investment bank”).


The scope of business that an ICBU may carry on is subject to the licence that the institution holds. As such, an ICBU may carry on its business in international currencies as follows:(i) For an ICBU established within an Islamic bank, the business includes:

(a) commercial banking business;(b) investment banking business3; and(c) other banking businesses in Malaysia, as may be specified by BNM;

(ii) For an ICBU established within a commercial bank, the business includes banking business as defined in the BAFIA4; and(iii) For an ICBU established within an investment bank, the business includes:

(a) merchant banking business as defined in the BAFIA; and(b) investment banking business as defined in the Banking and Financial Institutions (Licensed Merchant Banks) (Additional Business) Order 2007 and subject to the relevant licences issued by the Securities Commission.

NON-BANK FINANCIAL INTERMEDIARIES

Provident and pensions fund

• a group of financial schemes designed to provide members and their dependents with a measure of social security in the form of retirement, medical, death or disability benefits.•The major PPFs in Malaysia comprise the Employees Provident Fund (EPF), the Social Security Organisation (SOCSO), the Armed Forces Fund and the Teachers Provident Funds.

Insurance companies (including Takaful)

• there are 141 license holder under Insurance Act 1996 consist of 64 insurance companies, 36 brokers and 41 adjuster. • 64 insurance companies is categorized as follows:• 7 life insurance companies• 36 general insurance companies (including motor insurance)• 9 reinsurance companies (including motor insurance)• 1reinsurance composit companies


Yapeim •The first Islamic pawn-broking institution,Mu''assasah Gadaian Islam Terengganu (MGIT),was set up by the Majlis Agama Islam dan Adat Istiadat Terengganu in January 1992.• In March 1992, Kedai Al-Rahn (KAR), a subsidiary of Permodalan Kelantan Berhad.• On 21 August 1993, the MOF announced the Skim Al-Rahnu through the collaboration of three institutions namely BNM, YPEIM and BKRM 1997:: BIMB 2002:: EON bank and AGRO bank•Al--Rahnu or pawn-broking is an activity whereby a Valuable item is collateralised to a debt which maybe utilised as payment should the debt is not repaid within the agreed period. In the event the Debtor is not able to repay the debt, the pawned asset will be sold of to settle the outstanding debt and any surplus will be given back to the owner of the asset. However, if the owner off the asset could not be traced, it is the responsibility off the Islamic pawn-broker to place the fund in the Baitulmal account for future savings should any claims be made for the surplus by the owner or his heir.


Yapeim Malaysian Islamic Economic Development Foundation (YaPEIM) was

established in October 13, 1976 and incorporated under the Trustees

(Incorporation) Act 1952.

•PRODUCT OF BY YaPEIM

CONTRIBUTION SCHEME THROUGH PAYROLL DEDUCTION

HAJJ SCHEME

AR-RAHNU

CHARITABLE NATIONAL SCHEME


Development Finance Institution

•The DFIs in Malaysia are specialised financial institutions established by the Government with specific mandate to develop and promote key sectors that are considered of strategic importance to the overall socio-economic development objectives of the country•These strategic sectors include agriculture, small and medium enterprises (SMEs), infrastructure, maritime, export-oriented sector as well as capital-intensive and high-technology industries.•Roles and Functions of DFIs1.DFIs provide a range of specialised financial products and services to suit the specific needs of the targeted strategic sectors2.Ancillary services in the form of consultation and advisory services are also provided by DFIs to nurture and develop the identified sectors. 3. DFIs therefore complement the banking institutions and act as a strategic conduit to bridge the gaps in the supply of financial products and services to the identified strategic areas for the purpose of long-term economic development.4.The DFIs have, to a large extent, contributed to the development and growth of the targeted sectors.


Development Finance Institution (cont)

• DFIs prescribed under Development Financial Institutions Act 20021. Bank Pembangunan Malaysia Berhad2 Bank Perusahaan Kecil & Sederhana Malaysia Berhad (SME Bank)3 Export-Import Bank of Malaysia Berhad (EXIM Bank)4 Bank Kerjasama Rakyat Malaysia Berhad5 Bank Simpanan Nasional6 Bank Pertanian Malaysia Berhad (Agrobank)

List of other DFIs (not prescribed under Development Financial Institutions Act 2002)

1. Malaysian Industrial Development Finance Berhad2 Credit Guarantee Corporation Berhad3 Lembaga Tabung Haji4 Sabah Development Bank Berhad5 Sabah Credit Corporation6 Borneo Development Corp. (Sabah) Sdn Bhd7 Borneo Development Corp. (Sarawak) Sdn Bhd


National Saving banks

•BSN was incorporated on 1 December 1974 under the Ministry of Finance. With its incorporation, BSN has taken over all the duties and responsibilities of the Post Office Saving Bank. •BSN’s mission is to encourage savings, investments and smart financial management among Malaysians to increase their quality of life. •BSN has more than 5,100 employees, 382 branches and 621 automatic teller machine (ATM) nationwide. •BSN has more than 7 million customers spread throughout the length and breadth of the country and with savings of more than RM 8 billion. •BSN is continuously enhancing its services as well as expanding its range of products for the benefit of its customers. •BSN’s main products include Personal Financing, Home Loan, Premium Saving Certificate (SSP), Islamic Banking Scheme, Giro Savings Account, BSN Matrix and Matrix-I Debit Card as well as Visa and Mastercard credit card.


Co-operative societies

• Cooperation means working together.• Therefore, a group of people that working together for an economy objectives are called co-operative. • It is a a group of volunteer societies work to improve their economic.• its function is to helping each other and give support to the members. • Co-operation is not for profit, but to gain benefit.

Unit trust • its a collective investment scheme.• the collection oney is invested by fund manager in various share, bond or other securities with certain ratio depend on teh fund objectives.

Pilgrims Fund Board

• formed on 1969.• it use Islamic principles in its activities.• Involved in providing facilities for haj performing.• its main activity is deposit keeper.


Housing credit institution

• provide a facilities of housing loans. Eg: MBSB•Also receive savings and private investment. E.g: ASB, Public Mutual

Cagamas Berhad

•Cagamas Berhad (Cagamas), the National Mortgage Corporation, was established in 1986 to promote the broader spread of house ownership and growth of the secondary mortgage market in Malaysia. •It issues debt securities to finance the purchase of housing loans from financial institutions and non-financial institutions. •The provision of liquidity to financial institutions at a reasonable cost to the primary lenders of housing loans encourages further expansion of financing for houses at an affordable cost.•The Cagamas model is well regarded by the World Bank as a successful secondary mortgage liquidity facility. •Cagamas is the leading issuer of AAA debt securities in Malaysia as well as one of the top Sukuk issuers in the world. •Cagamas’ debt securities continue to be assigned the highest ratings of AAA and P1 by RAM Rating Services Berhad and AAA/AAAID and MARC-1/MARC-1ID by Malaysian Rating Corporation Berhad, denoting its strong credit quality.


Credit Guarantee Cooperation

•Credit Guarantee Corporation Malaysia Berhad engages in the formulation and management of viable credit guarantee schemes.• It helps small and medium-sized enterprises, through the network of branches of the commercial banks and finance companies, by providing guarantee coverage for partly secured and unsecured credit facilities of manufacturing, priority, and other sectors. •The company was founded in 1972 and is based in Petaling Jaya, Malaysia.

Leasing Companies

•Leasing and factoring companies is formed to complete the banking institution loan activities to enable any business companies to lease their equipment or machines to funding their business activities.

Factoring Companies

• factoring is one form of flexible loans, it is a advance money for the company to issue a new invoice.• 2 advantages :

• first : factoring is flexible wherea companies can make a loans based on its sales growth. This is important becase a companies usually have to pay for their raw material before get paid by customers.• secondly : a second alternative if companies dont have any asset for get a financing.


Venture Capital Companies

•Malaysia Venture Capital Management Berhad is a venture capital firm specializing in technology sector investments.• The firm invests in startups, seed capital, early stages, and expansion onwards of high growth companies. •It invests through direct ventures, seed ventures, and Outsource Partners Programme (OSP). •The firm seeks to invest in biotechnology and life sciences; electronics; information technology; internet; semiconductor; telecom and networking; local information; technology; communications; and medical and health services.

Zakah Administration in Malaysia

•Zakat institution is an integral part of the Islamic socio-economic system.•The respective state authority involved in zakat administration carries out the following responsibilities: promotion, collection and distribution of zakat; organized assistance to the poor and needy; including other asnaf in accordance to guidelines prescribed by the Syariah.•The collection of zakat was privatized. For example, Pusat Pungutan Zakat Wilayah Persekutuan (1991), Lembaga Zakat Selangor (1994), Pusat Urus Zakat Pulau Pinang (1994), Pusat Kutipan Zakat Pahang (1995), Pusat Zakat Negeri Sembilan (1998) and Pusat Zakat Melaka (2001).


Wakaf •Waqf is a form of charity with special features that has permanence and continuity. The beneficiaries can benefit from the waqf property for years, generations or even centuries.• Waqf is a form of worship to Allah and has significant contribution to economic development as it plays an important role as wealth redistribution mechanism. •In common tradition, properties given out for waqf purpose are namely mosque, land for Muslim cemeteries, business premises, agriculture lands, religious schools, etc. •In the modern times, majority of Muslim scholars accept cash waqf, share of waqf, waqf of shares and takaful waqf as form of waqfs. This article aims to discuss the role of waqf in achieving the hike in economic development focusing on the human welfare among the Malaysian society. •Waqf plays a vital role in poverty alleviation, health services, education, orphanage centre, mosques and residences for the needy society.


Trustee •Trustee (or the holding of a Trusteeship) is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another. Although the strictest sense of the term is the holder of property on behalf of a beneficiary.•Maybank Trustees Bhd (MTB), wholly owned by the Maybank Group, was incorporated on 12 April 1963 and registered as a Trust Company under the Trust Companies Act 1949 on 11 November 1963. We have been delivering fiduciary solutions to our clients in Malaysia for over 40 years and offer a wide range of services to individuals, corporations and government bodies.

financial system in malaysia

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