Muhammad bin Ibrahim: Sustainable financial inclusion
Closing remarks by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of
Malaysia, at the Alliance for Financial Inclusion (AFI) Data Workshop, Lanai Kijang,
Kuala Lumpur, 22 June 2010.
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Introduction
Thank you for giving me this opportunity to deliver the closing remarks for the AFI-BNM
Financial Inclusion Data Workshop. Bank Negara Malaysia is honored to co-host this event
with the Alliance for Financial Inclusion.
The pursuit of sustainable financial inclusion has become a matter of priority as well as
urgency in many countries, and is relevant to both the developed and developing economies.
The need for financial inclusion, especially for the developing countries, is undeniable.
Beyond the potential of being able to uplift the millions of financially underserved poor from
the unending cycle of poverty, an inclusive financial system contributes towards greater
social, economic, and political stability, a vital ingredient for growth. At the same time, we
must also be wary of the increase in situations where access to finance leads to
overindebtedness. Over-indebtedness can be the cause of much emotional hardship and stress,
and might result in social exclusion. Hence, financial inclusion must take into account
sustainability, and in this respect a balanced approach is important. It is this trade off that
pose challenge to regulators or oversight authorities.
Malaysian experience on the financial inclusion agenda
Allow me to reflect on the Malaysian experience for financial inclusion. In Malaysia, financial
inclusion is a national agenda. It is key in formulating socio-economic programs including the
Government Transformation Plan, the New Economic Model and the 10th Malaysia Plan.
This commitment towards financial inclusion is reflected in the Central Bank Act 2009, where
financial inclusion is legislated as an objective of Bank Negara Malaysia.
The efforts to develop a more inclusive financial system have been fruitful. More than 80% of
the Malaysian population currently has some form of savings account. Compared to the
global median of 8.4 bank branches per 100,000 individuals, Malaysia has 15.5 branches per
100,000 individuals (31 March 2010) with the number of ATM cards in circulation increasing
from 19.8 million (Dec 2006) to 28 million (April 2010), with an average annual growth rate of
11% in the last four years. Another important indicator is the total microfinance loans
outstanding, which has increased from USD 45 million (RM 151 million) as at end-2000 to
USD 757 million (RM 2.5 billion) as at end-March 2010, a compounded annual growth rate of
35.5%. While such positive trends are encouraging, we are also mindful of the associated
risks, such as non-performing loans, over-indebtedness and consumption of financial
products and services that are not suitable for the user. In this regard, efforts towards
financial inclusion are always conducted within the framework of sound banking practices,
risk management and adequate consumer protection.
Importance of financial inclusion data in the growth and development of an inclusive
economic system
Policy formulation for financial inclusion is complex for a number of reasons. First, it requires
the active involvement of many different stakeholders, in particular Government agencies
and very often a variety of NGOs, as well as financial institutions with specialized skills and
knowledge. Second, the state of economic and social development of a society is an
important determinant on the level and quality of financial inclusion. Third, what constitutes
acceptable level of inclusion, in terms of access to finance, protection of personal rights and
liberties, or assurance of retirement and healthcare benefits varies from one jurisdiction to
another.
For the reasons that I mentioned, there is no uniform global benchmark that can be used as
a successful model for financial inclusion programs. Success stories and experiences are
dispersed and often go unrecorded and to further the cause we need to reveals this situation.
The financial inclusion agenda requires a systematic and internationally-recognized set of
financial inclusion indicators that is meaningful and capable of assisting us in formulating
developmental policies. Furthermore, enormous efficiency gains from the availability of such
indicators can both reduce the cost of research and implementation as well as increase the
effectiveness of the delivery and execution of the policies.
Lessons learned in using financial inclusion data in the Malaysian context
Let me to briefly share some of the lessons we have learnt in terms of using data to improve
the policy formulation process, and develop a more efficient and inclusive financial sector.
Perhaps the most interesting example is the development of quality credit data which has
enabled financial institutions to make informed and responsible lending decisions in a timely
manner and to be able to mitigate serious problems such as fraud. These data have also
assisted Bank Negara Malaysia in performing its macro- and micro-surveillance duties and in
its policy-making role. The data in this case came from the development of a comprehensive
credit registry system. The availability of such data also allows individuals with good payment
track records to make a more credible case for access to credit, and helps overcome the
limitation of inadequate collateral.
Another example is the collaborative project with the Department of Statistics Malaysia to
conduct the Baseline Census of Establishments and Enterprises in 2005. The data gathered
from this initiative enabled the policy-makers to have a much more detailed profile of the
SME and micro-enterprise segments of the economy. The insights gained led to a new
understanding of the SME business landscape, and the launch of a national strategy for SME
development. Specific strategies could be developed, and the availability of data helped in
having more constructive dialogue between different stakeholders.
We also note that relatively new policy areas for financial inclusion require better data that
enable validation of policy stance, or in some cases change in policy direction. Inadequate or
inconclusive data in areas such as measuring financial literacy, consumer awareness and
financial education means that it is difficult to assess the cost and benefit of the proposed
policy framework and its impact on financial inclusion.
Conclusion
Allow me to now conclude my remarks. The successful implementation of policy work in the
area of financial inclusion requires the availability of quality data. The fact that this area still
remains relatively unexplored, compared to the availability of data for corporate business,
financial markets and other more sophisticated aspects of finance, clearly suggests that
much work remains to be done. The magnitude and scope of the topic also requires a
diverse group of policymakers to collaborate on a long-term basis. The establishment of a
working group to improve the quality of financial inclusion data is therefore most timely, and
will benefit policymakers in making better and more informed policies, as well as tracking the
outcome of policy initiatives. In addition, it may also serve to increase the visibility new issues
areas which are currently not being given sufficient priority by policymakers.
I would also like to encourage the working group to consider, in the longer term, the
development of some form of a composite financial inclusion index. The composite index will
benefit everyone by providing a broad measure of trends, facilitate comparisons between
distinct segments and create a benchmark for policy work in financial inclusion. It can
eventually help to popularize the notion of financial inclusivity, and in that way help garner
more global support for financial inclusion initiatives the world over.
Finally, on behalf of Bank Negara Malaysia, I would like to thank the participants who have
come here from many countries and institutions to contribute their ideas and knowledge to
this workshop. I also would like to thank the Alliance for Financial Inclusion for their
leadership and support in managing this initiative. I trust that the working group will be able to
contribute towards the global agenda for a more inclusive financial system, and look forward
to the fruits of your work in the months ahead.