The higher productivity levels and thus the value added to the economy by the financial sector has increased to 11.7% of GDP in 2009, compared to 9.2% in 2000. Commensurate with the higher value added by the financial sector is also reflected by the higher average wage in the sector which is about 70% higher than the national average. This trend towards higher productivity levels needs to be generalised throughout the economy. For the successful shift to higher value added activities and for productivity to become an important driver of growth, new talents are required to achieve this. Human capital development is, at the heart of Malaysia’s transition to become a high value-added economy. Physical capital accumulation will no longer be sufficient for Malaysia to make the transition into a more innovative and entrepreneurial society. A fundamental rethinking of our education system is thus crucial for the effective development of talents with the necessary skills and competencies required to achieve this. The cultivation of continuous learning is needed for the constant upgrading of talents. In the financial sector, there is now a comprehensive institutional arrangement to generate the supply of the right kind of talent required by the industry – from pre-employment to leadership development not only to focusing on the development of technical skills but also on the capabilities that practitioners require in the context of an emerging economy. The fourth critical factor is the extensive enabling infrastructure to facilitate private sector economic activity.

The composition of financial institutions will also show much greater diversity: with banks, insurers and takaful operators offering higher value-added services to serve the more sophisticated customers, with more developed venture capital industry and angel funds providing risk capital for innovative firms, and with development financial institutions stepping up to widen the base of financial services to all Malaysians. In addition, new and existing forms of financing that have thus far remained at the fringes of the financial system such as factoring, leasing and credit companies are expected to become more significant. Spurred by new technologies, such as greater adoption of electronic invoicing and receivables  6  BIS Review 146/2010  exchanges, it will generate more competition to the traditional players while enriching the product offering, particularly to the SME segment. The evolution of the financial sector will also focus on the new growth areas that will catalyse Malaysia’s transition to a higher value added economy. These include areas of financing such as for green technology, infrastructure development, education, and entrepreneurship and innovation. These are key focal points that will yield increased national productivity, drive innovation and stimulate the formation of businesses. It is anticipated that a significant portion of new frontier industries will be spearheaded by young, innovative SMEs that would require substantial investments in research and development, and for the commercialisation of the research and development. To support these endeavours, a more diversified financial structure, involving new financing modalities will be essential.