Benefits of foreign direct investment are manifold ranging from efficiency gains brought about by new technologies to the introduction of innovative products and management techniques. Further, more advanced research and development facilities and adoption of best practices from more matured financial markets will contribute to the transfer of skills and knowledge, adoption of sound risk management culture, technology and ideas in the domestic financial system. Another consideration in the liberalisation process is that of promoting financial inclusion, where all segments of society will have access to adequate financial services. The wide branch network of domestic banking institutions has ensured that non-urban areas have access to banking services, thereby eliminating the use of informal financial services. Domestic banking institutions with large presence in the non-urban areas, some as high as 20% of total branches, have succeeded in achieving sustainable performance while meeting this objective. Locally incorporated foreign banks are however located mainly in major cities and serve only certain segments of the banking public. A wider dispersion of branches of locally-incorporated foreign banks across the country would contribute towards achieving greater financial inclusion. For further expansion outside major cities to be a commercially viable proposition, it is recognised that the attainment of critical mass is essential. In this  6  BIS Review 55/2006  regard, in addition to the flexibility accorded to establish up to four new branches, consideration will be given to allow for greater presence in the non-urban areas and to serve the segments of the economy which are currently underserved.

Further advancement towards greater international integration will be considered to provide Malaysian consumers with greater access to world-class products and services, while further catalysing the development of the domestic industry towards meeting international best practices and standards. This will include the issuance of new licences in specialized lines and greater opportunities for internationally-reputed insurers to acquire equity interests in, or forge strategic alliances with domestic players, both in the direct insurance as well as re-insurance sectors. The progression towards further deregulation and liberalisation will continue to be managed at an appropriate pace, taking into account the development of the supporting infrastructure and the level of substantive progress achieved by domestic institutions, in order to ensure market stability. Next on the agenda in the development of the domestic financial system is the formation of investment banks. This is aimed at further enhancing the delivery of financial services to the wholesale and corporate sector. With this rationalisation, the business community will have a more streamlined access to banking services to fulfil their wider range of requirements. Comprehensive changes to the organisational structure of the development financial institutions have also been undertaken to provide a clearer scope and focus to service the needs of targeted sectors. At the same time, measures were also instituted to expand the role of the credit guarantee agency to further facilitate the development of the small and medium enterprises, a critical component of the nation's economy.