Zeti Akhtar Aziz: Financial inclusion in Malaysia
Welcoming remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the
Financial Inclusion Advisers Programme, Kuala Lumpur, 18 January 2010.
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Introduction
It is my pleasure to welcome you to the Financial Inclusion Advisers (FIA) Programme. While
the global financial landscape is experiencing fundamental changes and as the discussions
for financial reforms are being deliberated, of equal importance is the due attention to the
financial inclusion agenda. This is vital to achieve balanced sustainable economic growth
and broad based job creation.
Bank Negara Malaysia is most honoured to host and to jointly organise this Financial
Inclusion Advisers Programme with the Japan International Cooperation Agency (JICA). This
programme aims to provide practitioners from the financial services industry with a platform
to share experiences in the development of successful business models for financial
inclusion. It is also an opportunity for regulators to share knowledge and the experience on
how to improve the enabling environment for financial inclusion including the institutional
arrangements and ensuring its soundness and stability, thereby ensuring its sustainability.
Challenges in achieving financial inclusion
The global financial crisis and the consequent global economic slowdown in 2009 had
implications on the financial inclusion agenda. Disruptions in the functioning of financial
markets has brought the focus of attention on financial stability issues. In addition, the
collapse in demand following the financial crisis in the major economies resulted in a
contraction in world trade. The synchronized recession which ensued has made it even more
urgent not only to ensure that our financial systems are resilient and able to absorb external
shocks but that sufficient attention and resources are also available for achieving the
financial inclusion agenda.
We are now entering a period of improved international economic and financial conditions.
However, even in times of economic stability, financial inclusion is a demanding endeavour.
Firstly, the outreach needs to be comprehensive to include the low income and underserved
segments, given that that they are generally geographically dispersed and have low levels of
financial literacy. Secondly, micro finance institutions need to generate sufficient sustainable
returns to cover the high costs involved in providing such services and the lack of potential
for economies of scale so as to remain viable. Thirdly, such financial institutions also face the
challenges of obtaining sustainable and competitive funding.
Recognising the challenges in addressing these issues to achieve financial inclusion, this
programme, which started more than two years ago, is an outcome of a proposal I made at
the Langkawi Commonwealth Partnership for Technology Management (CPTM) Heads of
Government meeting in 2007, which discussed the subject of poverty eradication through
human capital development. The purpose of the Financial Inclusion Advisers programme
was to provide practitioners and regulators in the area of financial inclusion with practical
ideas via the sharing of knowledge and experiences on developing institutional structures,
creating an enabling environment and enhancing financial literacy. The ideas and
experiences shared could then be contextualised to the prevailing local conditions to
enhance financial inclusion. This proposal was welcomed by the members and resulted in
the first Financial Inclusion Advisers programme conducted in Lusaka, Zambia in April 2009.
The success of this inaugural programme hosted led us to this second programme hosted
here in Malaysia with the support of JICA. JICA has long been involved in capacity building in
the African continent, and we look forward to collaborating in the future in this area of
building more inclusive financial systems.
The Malaysian experience on the financial inclusion agenda
In Malaysia, the commitment to the financial inclusion agenda is reflected in the new Central
Bank of Malaysia Act 2009 which incorporates financial inclusion as an objective of the
Central Bank. With the enactment of the Act in November of 2009, the Central Bank has
imbedded in the legislation the financial inclusion agenda to ensure that future generation of
central bankers will continue to direct efforts to building an inclusive financial system.
Additionally, the Central Bank in the process of formulating a new blue print for the financial
sector for the next decade. This blueprint would also ensure the development of a more
inclusive financial system.
The results of the financial inclusion measures thus far have shown positive results. In 2009,
the penetration of deposit accounts and loan accounts in Malaysia are 3,300 deposit
accounts per 1,000 adults and 1,100 loan accounts per 1,000 adults respectively, which is
amongst the highest in the world. This high level of financial inclusion is the result of
conscious policies to build a progressive and inclusive financial system. The strategies
implemented have generated six characteristics of the financial system.
First, a business environment that allows a diverse range of financial service providers to
thrive and compete. This environment has led to the creation of commercial financial
institutions with differentiated strategies based on their strengths and the delivery of a
broader range of products and services that meet the diverse needs of consumers and
businesses. The financial system also includes foreign financial institutions through a series
of sequenced liberalisation measures as well as development financial institutions,
cooperatives and Government agencies that complement the domestic commercial banking
institutions. This approach leverages on the innovation and the implementation capabilities of
the private sector and the diversity and dynamism of competitive markets. At the same time,
it has allowed the Government to have a complementary role in serving the segments that
are under served by the private sector.
Second, basic banking products and services that are made available at reasonable costs. In
February 2005, Bank Negara Malaysia issued a guideline that required all banks to provide
such basic banking services. This guideline provided the definition of the features of basic
savings and basic current accounts that had to be made available by the commercial banking
institutions. This was aimed at ensuring that all segments of society had access to basic
deposit and transaction services at a reasonable cost. Further, a framework for microfinance
was also formulated to enable the provision of micro financing by financial institutions to
micro enterprises. Micro financing rates are not capped to allow for it to be commensurate
with the higher administrative costs involved in providing such services to micro borrowers.
This is to allow financial institutions to remain viable and to remain sustainable.
Third, a diverse set of delivery channels have been introduced to ensure widespread access
to financial services. The Central Bank€tms branching policy has encouraged financial
institutions to establish an extensive branch network across the country to ensure
widespread physical access to financial services. In 2008, there were 9 bank branches per
1,000 square kilometres and 24 ATMs per 1,000 square kilometres in Malaysia. In
comparison, the global median is 7 bank branches per 1,000 square kilometres and 15 ATMs
per 1,000 square kilometres respectively. Financial institutions are also encouraged to apply
technology to further enhance the delivery of financial services. The increased usage of
internet and mobile banking has also accelerated the migration to electronic payments and
has widened the access of financial services in the more remote areas.
Fourth, is the enhanced financial literacy and consumer protection. With greater financial
literacy and awareness, consumers will be protected from being exploited by predatory
lending and investment scams, and will be able to make better informed financial decisions.
To protect the rights of consumers, a Consumer Protection Framework has been developed
to enhance the disclosure standards of financial products and services, the various dispute
resolution mechanisms and to institute fair practice amongst the financial service providers.
The Central Bank has also established a one-stop service centre for the public, providing
advisory services on financial matters. Finally, a Credit Counselling and Debt Management
Agency has been established to provide counselling related to credit and debt management
for individuals as well as to inculcate responsible money management habits.
Fifth, the supporting financial infrastructure to facilitate the operations of financial institutions
is an important feature of the financial system. A hurdle to access to financing is the lack of
credit history. In this regard, credit bureaus have been established to enhance access to
financing by encouraging borrowers to build such credit records. In Malaysia, the Central
Credit Reference Information System or CCRIS, has provided credit information via an
on-line system since 2001. More recently in July 2008, the SME Credit Bureau commenced
operations to assist SMEs to build track records thereby providing a balanced profile of the
credit standing of SMEs thus, enhancing access to financing on more favourable terms.
Sixth, sufficient well trained finance professionals is vital to the performance of the financial
sector. Financial services is an industry that is dynamic and complex, with rapid product
innovation. To excel and produce results in a more challenging environment, practitioners of
financial services need to be highly qualified and equipped with technical finance calibre and
knowledge. Recognising the importance of human capital development in the industry, the
Central Bank has established several centres of excellence for learning for the overall
financial services sector, including covering the areas of corporate governance, leadership
development and Islamic finance.
Conclusion
Let me conclude my remarks. This Financial Inclusion Advisers programme is an example of
the smart partnership advocated by the CPTM movement. I would like to take this
opportunity to thank CPTM and JICA as well as the participating resource institutions - Bank
Rakyat Indonesia, National Bank for Agriculture and Rural Development (NABARD) of India,
Amanah Ikhtiar Malaysia (AIM), SIRIM Berhad, Agro Bank and the Non-Aligned Movement -
Centre for South-South Technical Cooperation (NAM-CSSTC) for contributing to this event. I
also wish to welcome the members of the microfinance community from Kenya, Malawi,
Tanzania, Uganda and Zambia to this programme.
On that note, I wish you a very successful learning experience and a pleasant stay in
Malaysia. Thank you.