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Asian Link ISSUE 12/2013
CONTENTS
ASIAN LINK
ISSUE 12/2013
Microfinance: Lessons from an Industry’s Development 4
How the development of the microfinance
industry can serve as a guide to other sectors
Financial Inclusion in Malaysia 7
Developing a financial inclusion index that will help monitor
the progress towards achieving inclusive growth
Paving the Way to Inclusive Growth 12
Amanah Ikhtiar Malaysia goes full steam ahead in unlocking
entrepreneurs amongst the poor
Digital Financial Services for Financial Inclusion 15
Providing financial services to meet the
needs and motivations of the poor
Advocating Financial Inclusion in Malaysia 22
AKPK drives financial literacy forward as the nation
looks towards an all-inclusive financial system
Going Beyond the Conventional 25
Banking beyond branches may just be the game
changer the financial services industry needs
Professionalising the Microfinance Sector 28
Asian Institute of Finance leads human
capital development in Asia
Making Financial Literacy Education a Priority 31
A look at how important it is to equip the young with the
necessary tools to make sound financial decision
Raising the Standard for Talent Development 34
Zooming in on talent and trends surrounding Islamic banking
Taking the Road Less Travelled 36
Developing the needed talent to drive economic growth
Emerging Risks and Business Challenges 38
AIF Board of Directors
Tan Sri Dr Zeti Akhtar Aziz
Chairman of the Board
Governor, Bank Negara Malaysia (BNM)
Datuk Ranjit Ajit Singh
Vice Chairman of the Board
Chairman, Securities Commission
Malaysia (SC)
Tan Sri Azman Hashim
Executive Chairman, Amcorp Group Berhad &
Chairman, Institut Bank-Bank Malaysia (IBBM)
Dato’ Sri Zukri Samat
Managing Director, Bank Islam Malaysia
Berhad & Chairman, Islamic Banking and
Finance Institute Malaysia (IBFIM)
Industry experts discuss key issues and challenges
surrounding risk management in the financial services industry
Dato’ Dr Nik Norzrul Thani
Nik Hassan Thani
Chairman, Zaid Ibrahim & Co.
Editorial Team
Chief Editor
Dr Raymond Madden
Dato’ Yusli Mohamed Yusoff
Non-Executive Chairman, Mudajaya
Group Berhad
Editor
Dr Sofiza Azmi
Mr Kung Beng Hong
Director, Alliance Finance Group Berhad &
Alliance Bank Malaysia Berhad
DISCLAIMER: The Asian Institute of Finance does not
represent nor warrant the completeness, accuracy,
timeliness or adequacy of this material and it should
not be relied on as such. The Asian Institute of Finance
neither accepts nor assumes any responsibility or liability
whatsoever for any data, errors or omissions that may be
contained in this material or for any consequences or results
obtained from the use of this information. This publication
does not necessarily reflect the views or the positions of
the Asian Institute of Finance.
En Hashim Harun
President/Chief Executive Officer, Malaysian
Reinsurance Berhad & Chairman, The
Malaysian Insurance Institute (MII)
Dato’ Haji Syed Moheeb Syed
Kamarulzaman
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Asian Link ISSUE 12/2013
Publications Manager
Lim Xiou Ann
(838740P)
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Editor’s Note
T
here is no gainsaying that if
implemented successfully, greater
financial inclusion goes a long way
towards breaking the vicious cycle of
poverty and uplifting the living standards
of the poor. In the past decade, financial
inclusion has undergone profound
changes and increased in popularity as it
progressively became a conspicuous part
of the development agenda. However,
two main challenges prevent efforts in
achieving a fully inclusive financial system.
The first challenge is one of scale.
If financial intermediaries are to deliver
affordable services and gain market
outreach, they need to scale-up and
use technology such as mobile banking
to address the physical constraints in
reaching out to the unbanked. However,
technology has more often than not been
cited as one of the greatest challenges
faced by microfinance providers. A major
hurdle is integrating technology in a costeffective method into their business model
in a way that greatly enhances their ability
to better serve the poor and underserved
segments of the population.
Another challenge is improving
financial literacy of the people themselves.
Despite the raft of financial inclusion
initiatives implemented by various
quarters, the level of financial literacy
and awareness remains low. I was once
again reminded how important financial
education and literacy is by Ben Bernanke,
Federal Reserve Chairman, who recently
underscored the need for financial literacy
education. In a speech delivered at the
University of Dayton, he said: “Among
the lessons of the recent financial crisis
is the need for virtually everyone – both
young and old – to acquire knowledge of
finance and economics to better weather
market turbulence.” I also recall work I did
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Asian Link ISSUE 12/2013
in the UK with young people where it
transpired that 50% of 16-year-olds did not
know what 50% of 16-year-olds actually
meant. Since financial literacy offers one
of the best forms of consumer protection,
governments should consider including
financial education in the national school
curriculum.
I n developing economies lik e
Malaysia, the goal of financial inclusion
continues to focus on bringing the
unbanked into the financial mainstream.
Based on the principles of equitable and
inclusive growth, the role of financial
inclusion as an important development
tool in poverty alleviation and achieving
inclusive, sustainable growth has taken
centre stage.
Dr Raymond Madden
Chief Editor
Microfinance:
Lessons from an
Industry’s Development
How the development of the microfinance
industry can serve as a guide to other sectors
by Mayada El-Zoghbi
Senior Microfinance Specialist, CGAP Paris
I
t’s no secret that microfinance has
become something of a cause célèbre in
the fight against poverty. Its popularity
was no doubt propelled in the last decade
by the 2005 UN Year of Microcredit and the
awarding of the Nobel Peace Prize a year
later to Muhammad Yunus, founder of the
Grameen Bank. But few observers could
have predicted the extent of the ballyhoo
or the breathtaking and misguided rush
to brand microcredit the panacea for poor
people.
In fact, the Nobel fanfare in Oslo had
barely subsided before well-intentioned
philanthropists, donors as well as the
foundations and aid agencies they
managed began looking for ways to
‘invest’ in institutions that serve the poor. So
popular was the call to action that online
platforms like Kiva.org attracted millions of
common-cause lenders.
Financial Inclusion
However, a large body of evidence now
tells us that what poor people really
need is not so much cheap credit alone,
but a range of financial services that
are not unlike those you and I take for
granted – safe places to save money,
affordable ways to transfer it and the
means to insure themselves against the
vagaries of misfortune such as a health
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crisis or a drought. In other words, what
the ‘unbanked’ need is not an exclusive
financial system subsidised by charitable
admirers of microcredit. What they actually
need is access to an existing system that
has heretofore excluded them.
Of course, established microfinance
institutions (MFIs) like those that report to
the Microfinance Information eXchange,
or MIX (www.mixmarket.org), continue
to pioneer new ways for poor people to
transition from a cash-based and cashstrapped economy to the world of formal
financial services.
In cases where geography leaves
communities within a two-day walk – or
more – to the nearest bank branch, MFIs
have begun to partner with technology
firms to offer viable ‘branchless banking’
solutions in rural areas where running
water is scarcer than mobile phones. As
Microfinance: Lessons from an Industry’s Development
phones become smarter, so too have
mobile banking interfaces, which now
cater not only to those who lack access
to a bank branch, but also those who are
illiterate.
In several markets where regulation
permits, telcos have been able to directly
offer payment services through local
agents to anyone who has a mobile phone
but may not yet have a bank account. Also
emerging are new firms that ride on these
payment platforms to offer other types of
financial products at a fraction of the cost
of traditional brick-and-mortar providers.
An Emerging Niche:
Islamic Microfinance
Through mobile technology and other
innovations, microfinance providers are
helping millions of poor people leapfrog
into the formal financial system. But
evidence suggest that millions more in the
Muslim world – where some 650 million
people live on less than $2 a day – continue
to exclude themselves from this system
because they see it as inconsistent with
the basic tenets of Sharia, or Islamic law.
In particular, potential Muslim clients
are wary of products that either charge
or, in the case of savings, yield interest.
However, this barrier to Muslim clients’
entry into the formal financial system has
been addressed by larger Islamic banks.
Many of which have successfully structured
consumer finance products such as the
cost-plus-mark-up murabaha, which
allows customers to purchase fixed assets
for a fee, or ijara, which closely resembles
a conventional lease. But providing these
or similar products to poorer clients,
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especially those who lack collateral, is a
costly and risky endeavour.
That helps to explain why Islamic
microfinance’s outreach remains extremely
limited. In fact, a recent CGAP paper, Trends
in Sharia-Compliant Financial Inclusion,
revealed that there are only 1.28 million
Islamic microfinance clients worldwide
and 82% of these are concentrated in
Bangladesh, Sudan and Indonesia.
Wherever they are offered, though,
Sharia-compliant products for poor clients
are generally limited to those that cost little
to administer or are externally subsidised.
Indeed, the CGAP study shows that
murabaha and Qard Hassan, essentially
a charitable ‘loan’ financed through alms
or other third-party grants, represent
the lion’s share of the Sharia-compliant
portfolio of most microfinance providers.
Microfinance: Lessons from an Industry’s Development
This limited product offering stunts
any prospects for the Islamic microfinance
industry’s growth: Qard Hassan is, by
definition, not a self-sustainable product;
while murabaha finances goods, not
entrepreneurial activity. Thus, they do little
to further the goal of financial inclusion for
the poor.
The good news is that, as with the
mobile technology space, Islamic financial
service providers are increasingly keen to
develop new microfinance products –
both as part of their social mission and out
of recognition that poor people represent
a vast and potentially lucrative untapped
market.
Beyond Financial Services:
Impact Investing
Helping these providers innovate is a new
breed of investors who have established
themselves in the microfinance space.
They are redefining returns based not only
on their financial bottom line, but also on
their social impact. These investors have
seen the benefits of microfinance serving
the financial needs of the poor and the
potential of other social businesses to
address larger development issues such
as access to energy, water, education and
health care.
In developing countries, there are
more than 300 impact investment funds –
known alternatively as socially responsible
investing vehicles (SRIs), microfinance
investment vehicles (MIVs) or Bottomof-the-Pyramid (BoP) venture funds.
These funds are run by specialised asset
managers such as responsAbility, Triodos
and Bamboo Finance; and mainstream
financial institutions such as J.P. Morgan,
UBS, Deutsche Bank, etc.
Helping to support the impact
investing industry’s growth; foundations,
networks and universities are also stepping
Helping to support the impact
investing industry’s growth;
foundations, networks and
universities are also stepping
in to provide much-needed
investment in infrastructure,
research and know-how
in to provide much-needed investment
in infrastructure, research and know-how.
They include mainstream foundations
such as Rockefeller, Omidyar and the Bill &
Melinda Gates Foundation; networks such
as the Global Impact Investing Network
(GIIN), Aspen Network of Development
Entrepreneurs (ANDE) and European
Venture Philanthropy Association (EVPA); as
well as universities such as Duke, Harvard
and Oxford.
Over the past three years, for example,
J.P. Morgan and GIIN have conducted an
annual survey on global impact investing,
capturing data from a sample of the
largest funds. The latest survey released in
January 2013 showed that $8 billion was
committed by impact investors in 2012, a
steep increase from $2.5 billion in 2010.
Where is all this money going?
According to a CGAP study (link to: http://
www.cgap.org/publications/where-doimpact-investing-and-microfinancemeet) focusing on developing countries,
microfinance accounts for 72% of impact
investors’ assets in these countries. A distant
second is financing for small- and mediumsized enterprises, which accounts for
another 15%. Hence, there is still a long way
to go to build up this industry’s maturity
1
For more on impact investing, see the forthcoming CGAP Brief, Where Do Impact Investing and Microfinance Meet?
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level to match that of microfinance’s1. The
billions of dollars directed toward impact
investing signal a profound increase in
mainstream finance taking a role in solving
development problems, which is good
news for everyone.
What’s Next?
The microfinance industr y has
demonstrated that profit motive and social
good can be achieved on the same side of
the balance sheet. In the course of its threedecade learning curve, the industry also
has seen many missteps, with consumer
lenders stepping in to take advantage of
the hype and pushing out high-cost credit
to vulnerable individuals. But the industry
has rebounded by establishing clearer
standards and achieving clarity as well
as greater transparency on the definition
of social impact. Over the years, more
nuanced claims have emerged on how
better financial services can help poor
people improve their lives.
As investors turn to other social
businesses hoping to see the same
trajectory, we hope they will take on the
lessons of the microfinance industry early
on.
Mayada El-Zoghbi heads the Paris
office of CGAP, where she is a Senior
Microfinance Specialist. El-Zoghbi
manages the Donors and Investor
Team, a team of microfinance
s p e c i a l i s t s w h o wo r k c l o s e l y
with donors and investors on aid
effectiveness in microfinance. She
is also responsible for CGAP’s work
on financial inclusion with partners
in the Middle East and North African
countries and through this work has
been leading research at CGAP on
Islamic microfinance.
Financial Inclusion
in Malaysia
Developing a financial inclusion index that will help monitor
the progress towards achieving inclusive growth
by Zarina Abdul Rahman
Manager, Development Finance and
Enterprise, Bank Negara Malaysia
T
he promotion of an inclusive
financial system has been the
main national agenda of many
countries, including Malaysia.
Although the momentum has certainly
been building up with financial inclusion
becoming a buzz word internationally, the
question that arises now is the method
by which to measure it. For governments
and policymakers alike, quantifying the
inclusiveness of the financial system draws
important policy implications for poverty
alleviation and economic development.
At present, data on financial inclusion has
been relatively scarce and fragmented.
Computation of Index of
Financial Inclusion for Malaysia
In order to address the need for a common
understanding of financial inclusion and
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a common set of indicators to measure
progress toward financial inclusion, a
core set of indicators were developed by
the Alliance of Financial Inclusion Data
Working Group (AFI FIDWG). The AFI Core
Set is organised in two categories: (1)
access to financial services and (2) use of
financial services.
Building on this core set of indicators,
Bank Negara Malaysia (BNM) developed
country-specific financial inclusion key
performance indicators that measure
four key dimensions of financial inclusion
for Malaysia. They are: convenient
Financial Inclusion in Malaysia
Figure 1: Graphical presentation for calculating IFI
Indicators
• % of mukim with >2,000 people
with at least one access point
• % of population in mukim with at
least one access point
Dimensions indices
Index of financial
inclusion
Convenient
accessibility
• % of adults with deposit accounts
• % of adults with financing
accounts
• % of adults with life insurance /
takaful policies
Take-up rate
• % of customers with active
deposits
• % of customers with performing
financing accounts
Responsible
usage
• % of customers satisfied with
overall financial services
Satisfaction
level
Index of Financial
Inclusion
Source: Bank Negara Malaysia
accessibility, take-up rate, responsible
usage and satisfaction (see Figure 1). The
four dimensions have similar indicators
as recommended by AFI but has been
customised to cater for Malaysia.
The Index on Financial Inclusion
(IFI) developed by BNM estimates the
level of inclusiveness of the financial
sector, measuring the extent to which
the general population has access to
financial services offered by formal financial
intermediaries and to some extent, the
quality of financial services. The IFI captures
information on all four dimensions in a
single number between 0 and 1, where
0 denotes complete exclusion and 1
indicates complete financial inclusion in a
country.
Convenient Accessibility (Dimension 1)
In an inclusive financial system, financial
services should be easily available to
potential users. Indicators of availability of
services are the number of access points
providing financial services such as bank
branches/outlets, ATMs or banking agents
(BAs). Here, access points are defined as
facilities that allow both cash in and cash
out. The convenient accessibility dimension
is measured using two indicators: (i)
percentage of mukim 1 (sub-districts)
The level of financial
inclusion in Malaysia
is measured at 0.77;
indicating high financial
inclusion in the country
with at least a population of 2,000 with
access points and (ii) percentage of adult
population living in mukim with at least
one access point. Both indicators capture
financial services outreach, with a target of
having access points spread widely across
the country.
Take-up Rate of Financial
Products (Dimension 2)
The degree of banking penetration is
measured by the size of the banked
population, that is, the number of adults
with a bank account over the total number
of the adult population. This means that if
there is complete financial inclusion where
every adult in an economy has a deposit
and/or credit account, then the value of
this measure would be equal to 1. Findings
on the demand-side survey conducted by
BNM revealed that:
1. About 92% of the individuals had
deposit accounts with regulated
financial institutions in Malaysia
2. 36% have at least one loan/financing
account
3. 18% have life insurance/takaful
policies
Hence, these three indicators are used
to estimate the take-up rate dimension for
the main financial products offered to the
general population.
Responsible Usage (Dimension 3)
The third dimension is based on the
concept of the underbanked or the
marginally banked, which refers to people
with bank accounts but do not or hardly
use banking facilities. Thus, having a bank
account does not imply that the account
is adequately utilised and does not ensure
inclusivity of the financial system 2. In
terms of responsible usage dimension,
1
Mukim is a sub-district in Malaysia or the fourth-level administrative unit (refer to AFI Core Set Indicators’ definition on administrative unit) where the first level is defined as
the national level, followed by second as the state and third as the district.
2
Chattopadhyay, Sadhan Kumar (2011), Financial Inclusion in India: A Case-Study of West Bengal, WPS (DEPR) 8 / 2011, RBI Working Paper Series
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Financial Inclusion in Malaysia
Table 1: Index of Financial Inclusion for the General Population in Malaysia
Data
(%)
Target
(%)
Index
of Each
Indicator
Weight
% of mukim with at least 2,000 population with at
least one access point
46
90
0.51
0.5
% of population living in mukim with at least one
access point
82
95
0.86
0.5
% of adult population with deposit accounts
92
95
0.97
0.5
% of adult population with financing accounts
36
50
0.72
0.25
% of adult population with life insurance / takaful
policies
18
40
0.45
0.25
Responsible
Usage
% of customers with active deposits
87
90
0.97
0.5
% of customers with performing financing accounts
97
97
1.00
0.5
Satisfaction
Level
% of customers who are satisfied - overall financial
services
61
80
0.76
1.0
Dimension
Convenient
Accessibility
Take-Up Rate
Indicators
Index of Each
Dimension
Equal
Weighted
Dimension
0.64
0.25
0.70
0.25
0.98
0.25
0.76
0.25
Equally
Distributed FII
0.77
Index ranges from 0 –1, with 1 being perfect financial inclusion
0
0.25
Low
0.75
0.5
Moderate
Above Average
1
1.00
0 – 1.00
High
Source: Bank Negara Malaysia
two basic banking services (deposit and
credit) were considered by using indicators
on percentage of customers with active
deposits and percentage of customers
with performing financing accounts. Taken
together, these two indicators are proxies
of activities by customers in using the
products responsibly.
Satisfaction Level (Dimension 4)
This dimension relates to the quality of
financial services. While important, the
quality dimension is a more complex
topic, both conceptually and in terms
of measurement. Although a number of
efforts have been made to increase the
The level of financial
awareness and knowledge
varies between different
segments of the
population – drawing
attention to the need to
spread financial literacy
across the country
access and the use of financial services,
the quality of financial access remains
under question. In terms of the satisfaction
dimension, the indicator is the percentage
of customers who are satisfied with overall
financial services. This dimension can
be enhanced in the future, provided
that some common indicators for the
quality dimension are agreed upon at the
international level.
Level of Financial
Inclusion in Malaysia
Using data from all four dimensions for
Malaysia, the IFI computation is presented
3
Demirguc-Kunt, Asli & Klapper, Leora (2012), Measuring Financial Inclusion: The Global Findex Database, Policy Research Working Paper No. 6025. Washington, DC, World Bank
4
Sarma, Mandira (2012). Index of Financial Inclusion – A measure of financial sector inclusiveness. Working Paper No. 07/2012, Berlin Working Papers on Money, Finance, Trade
and Development
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Financial Inclusion in Malaysia
Table 2: Index of Financial Inclusion for the Low-Income Group in Malaysia
Data
(%)
Target
(%)
Index
of Each
Indicator
Weight
% of mukim with at least 2,000 population with at
least one access point
46
90
0.51
0.5
% of population living in mukim with at least one
access point
82
95
0.86
0.5
% of adult population with deposit accounts
89
95
0.94
0.5
% of adult population with financing accounts
10
50
0.20
0.25
% of adult population with life insurance / takaful
policies
8
40
0.20
0.25
Dimension
Convenient
Accessibility
Take-Up Rate
Indicators
Responsible
Usage
% of customers with active deposits
87
90
0.97
0.5
% of customers with performing financing accounts
97
97
1.00
0.5
Satisfaction
Level
% of customers who are satisfied - overall financial
services
60
80
0.75
1.0
Index of Each
Dimension
Equal
Weighted
Dimension
0.64
0.25
0.32
0.25
0.98
0.25
0.75
0.25
Equally
Distributed
FII
0.68
Index ranges from 0 –1, with 1 being perfect financial inclusion
0
0.25
Low
0.75
0.5
Moderate
Above Average
1
1.00
0 – 1.00
High
Source: Bank Negara Malaysia
in Table 1. In the Malaysian case, the targets
are benchmarked against some of the
more developed countries.3 This higher
benchmarking standard on financial
inclusion was chosen for Malaysia to reflect
the country’s aspiration of becoming a
high-income nation by 2020. The weight
for each indicator is set to reflect the
importance of the indicators at this point
in time, but the dimensions are weighted
equally.
Depending on the values of IFI, the
results are split into four categories:
(i) 0.75 < IFI ≤ 1 – high financial inclusion
(ii) 0.5 ≤ IFI < 0.75 – above average
financial inclusion
(iii) 0.25 ≤ IFI < 0.5 – moderate financial
inclusion
(iv) 0 ≤ IFI < 0.25 – low financial inclusion
It should be noted that the importance
of the indicators used to construct IFI may
change over time due to changes in
policy emphasis and priority. The weight
for each dimension may also vary as the
country progresses in terms of financial
development. An example would be the
access and usage of financial services
that has gone beyond the boundaries of
physical access points to now embrace
virtual space such as the internet and
mobile banking facilities.4
As shown in Table 1, the level of
financial inclusion in Malaysia is measured
at 0.77; indicating high financial inclusion
in the country. As the IFI enables the
4
calculation of the percentage contributions
made by each indicator to the overall level
of financial inclusion, the index can be
used to monitor performance progress as
well as support policy recommendations
aimed at improving performance. This
clearly demonstrates an important policy
application of the IFI.
Although the level of financial
inclusion in Malaysia is relatively high,
improvements on the indicators of some
of the dimensions must be made to ensure
that financial inclusion brings significant
economic and sociopolitical impact to
the society at large. The index can also
be adjusted and expanded after a certain
period to reflect the structural changes in
the financial landscape by replacing some
Sarma, Mandira (2012). Index of Financial Inclusion – A measure of financial sector inclusiveness. Working Paper No. 07/2012, Berlin Working Papers on Money, Finance, Trade
and Development
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Financial Inclusion in Malaysia
The benefits of the index to policymakers are two-pronged. First, it helps policymakers to focus
on the dimensions where gaps exist. Subsequently, it enables them to introduce new policies
and initiatives to narrow such gaps
Figure 2: Comparing the Results of the General Population
with the Low-Income Group
Convenient
Accessibility
Satisfaction
Level
1
0.8
0.6
0.4
0.2
0
Take-Up
Rate
Responsible
Usage
General population
Low Income
Source: Bank Negara Malaysia
indicators or by including more indicators
and/or dimensions as they become more
relevant for the financial inclusion agenda
of the country.
In Table 2, the low-income group data
for Malaysia is used to illustrate how IFI
can be used to confirm whether a specific
policy intervention is needed to cater for
different income levels. In this scenario,
low-income is defined as the segment of
population who earn less than RM1,000
per month. When comparing the results
of the low-income group with the general
population, the former scored a lower
index (0.68) compared to the general
population (0.77).
Hence, when the population is
segmented, there is evidence of a gap
between the low-income segment and
the general population. The benefits
of the index to policymakers are twopronged. First, it helps policymakers to
focus on the dimensions where gaps exist.
Subsequently, it enables them to introduce
new policies and initiatives to narrow such
gaps.
Future Development
The result of the index is substantiated
by the financial inclusion demand survey
conducted by BNM back in 2011. Based
on the findings of the survey and the
mapping of access points; the agent
banking framework was introduced by
BNM in 2012 with the aim of further
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enhancing access to quality and affordable
financial services, particularly in rural and
remote areas.
The introduction of agent banking
provides a mechanism through which
licensed financial institutions can provide
financial services to customers through a
non-bank agent and hence, expand their
market outreach. As such, a proper agent
banking model will be able to overcome
the supply problems to a greater extent.
However, simply providing financial
services is not sufficient. There is still the
burning issue of the lack of awareness
about the availability of many financial
products and services and insufficient
levels of financial literacy. This is most likely
true of rural people who, because of their
ignorance, may not be able to take full
advantage of financial facilities that are
available.
Another significant finding of
the survey is that the level of financial
awareness and knowledge varies between
different segments of the population –
drawing attention to the need to spread
financial literacy across the country. The
need to promote financial education at
all levels of age and income necessitates
intervention by relevant ministries and
other stakeholders to ensure that the public
make better-informed financial decisions.
Concerted efforts by all stakeholders are
needed to make financial inclusion more
meaningful and effective.
Zarina Abdul Rahman is a manager
in the Development Finance and
Enterprise Department at Bank
Negara Malaysia.
Paving the way to
inclusive growth
Amanah Ikhtiar Malaysia goes full steam ahead in
unlocking entrepreneurs amongst the poor
by Datuk Hajah
Zabidah Ismail
Managing
Director, Amanah
Ikhtiar Malaysia
A
s one of the region’s most dynamic
economies, Malaysia has an impressive
track record of sustained economic growth
and substantial poverty reduction. Since
the 1970s, Malaysia has successfully
reduced poverty that besieged nearly half
of the population through various poverty
eradication programmes carried out by
the government. Today, Malaysia is well on
target in achieving the 2015 Millennium
Development Goals. In 2012, the country’s
poverty rate decreased to 1.7% from 16.5%
in 1990.
The role of non- governmental
organisations in the overall polic y
framework to eradicate poverty was given
significant importance by the government
under the National Development Policy
and one such organisation is Amanah
Ikhtiar Malaysia (AIM). Started as an applied
research project initiated by Universiti Sains
Malaysia in 1986, it was institutionalised as
a registered private trust a year later. Today,
AIM as the largest microcredit institution in
Malaysia is indeed a force to be reckoned
with, playing a major role in Malaysia’s
national poverty alleviation agenda.
Developing the Microfinance
Industry in Malaysia
Recognised as complementing the
g ove r n m e n t ’s p ove r t y a l l e v i a t i o n
programmes, AIM has received strong
1
financial support from the government
since its establishment. This can be seen
through allocations made under various
Malaysia Plans.1 With 2.4 million households
in the country that are currently earning
less than RM2,300 a month, AIM empowers
the hardcore poor and poor to work their
way out of poverty as well as uplift their
living standards through disbursement
of microcredit loans to finance incomegenerating activities. The organisation
offers loans that range from RM3,000 to
RM50,000 and a weekly repayment basis
that ranges from 25 to 250 weeks.
From a single branch in 1987, AIM has
expanded to include a total 123 branches
nationwide. Since its inauguration 25 years
ago, AIM has disbursed some RM8.9 billion
to date and about 340,000 borrowers
(better known as Sahabat) have enlisted
their help. Of this total, about 20% of
The Malaysia Plan is a five-year Malaysian government national development initiative. AIM has so far received allocations of RM200 million under the Seventh Malaysia Plan,
RM300 million under the Eight Malaysia Plan, RM170 million under the Ninth Malaysia Plan and RM491 million in the recent Tenth Malaysia Plan
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Paving the Way to Inclusive Growth
‘Social collateral’ and peer pressure within the group has led to the amazingly high repayment
rates as it encourages a culture of financial responsibility that gives a strong basis for
encouragement, transparency and accountability
them have reached the income threshold
of RM3,500 a month and graduated
to become microentrepreneurs. With
impressive track record of churning
entrepreneurs amongst the poor; AIM is
confident that by 2020, all its Sahabat will
graduate to this income level.
At present, AIM’s market share of
the microfinance industry is 40% and is
expected to increase to 50%.
Also, more than 50% of its loans
is channelled towards retail
trading, while the remaining go
towards agriculture products
and other services such as salon/
spa, tailoring, computing and
information technology.
accountability. AIM also requires members
of the group to be of the same gender
and community, with no close family
relationships and be of similar socioeconomic status. The self-organised groups
also serve as a social network of voluntary
support through the network of mentors
and mentees who provide advice and
assistance to their peers where needed.
AIM’s Business Model
AIM also has a high repayment
rate of about 99.6%, which is
attributable to its specialised
credit delivery system as well as
the group-based lending model
adopted by AIM. Although
loans are given to individuals,
borrowers are required to form
groups of five that provide
mutual support to each other
throughout the loan disbursement process,
which ensures loan repayment. Access to
subsequent loans is given only if previous
loans are paid in full.
The collective responsibility also
includes pooling funds to help advance
money to members of the group who
are unable to make the weekly loan
payment schedule. This ‘social collateral’
and peer pressure within the group has
led to the amazingly high repayment
rates as it encourages a culture of financial
responsibility that gives a strong basis
for encouragement, transparency and
Before a loan is granted, groups
par ticipate in a week-long training
programme to familiarise with the rules,
procedures and conditions governing the
loan and its repayment. Following that,
once they pass the group recognition test
that is carried out at the end of the five-day
course, they are organised into centres
with 2-12 groups to a centre. Centre
meetings are held weekly; during which
AIM staff conduct transactions, perform
weekly reviews of performance as well as
other social services. During these centre
meetings, Sahabat empower each other
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to stay off the path of poverty by sharing
successes and discussing ideas for solving
business and personal problems.
Sahabat Initiatives
To facilitate activities of Sahabat and serve
as another source of income through
dividends received as members, AIM
established its own cooperative
known as Koperasi Amanah
I k htiar Malaysia in August
2012. The Koperasi currently
has 4,000 members and the
n u m b e r s a re e x p e c te d to
increase tremendously once
the nationwide roadshows
are completed. One of the
many initiatives introduced
by the Koperasi in ser ving
and enhancing the economic
interest of its members was
the set-up of Pasaraya Sahabat
Ikhtiar – a supermarket chain
that enables Sahabat to not only
buy their groceries from these
supermarkets but also market
their products, which have the
potential to further increase their
livelihood. For a start, one was set
up in Semporna, Sabah.
A welfare fund known as Tabung
Kebajikan dan Kesejahteraan Sahabat
( TKKS) was established in 2006 for
AIM’s borrowers. The aim of this fund is
to provide financial support to members
who are sick, hospitalised and whose
projects or lives are affected by natural
disaster. Members voluntarily contribute
RM1 a month while AIM contributes
RM500,000 yearly to this fund. Recently,
AIM channelled about RM1.5 million of its
RM64.4 million welfare fund to borrowers
Paving the Way to Inclusive Growth
who were affected by the invasion in Lahad
Datu, Sabah.
Apart from that, AIM is working
with local universities and departments
of higher education under a programme
called Women in Social Enterprise (WISE),
where university students will be placed
with Sahabat for a month. This is to
facilitate knowledge-sharing and to create
entrepreneurs out of students. Students
will also learn to appreciate the struggles
in becoming an entrepreneur as some end
up becoming marketing agents for their
Sahabat parents by selling their products.
On the other hand, Sahabat can pick up
skills such as preparing simple accounts
from these students. In 2012, over 200
students were involved in this scheme.
AIM plans to increase this number to 800
in 2013 due to overwhelming response.
To i n c re a s e m a r k e t o u t re a c h ,
AIM worked closely with Bank Islam
to leverage on the bank’s ‘Transact at
Palm’ or TAP Mobile Banking service. This
mobile technology allows borrowers to
perform banking transactions such as loan
repayments, bill payments and prepaid
airtime reload anywhere without the need
for internet access.
Lending a Hand to
Female Entrepreneurs
Women, especially housewives, are usually
overlooked by banks as they often don’t
meet the lending requirements set by
banks. However, studies have shown that
women make better borrowers. They are
more focused and have a higher tendency
to capitalise on loans to improve their
family’s standard of living.
There are also social and practical
reasons for lending to women: (1) they
play an active role within the household;
(2) they are reliable with repayments and
are more financially responsible; (3) they
are more self-sacrificing as they want to
see their family better off; and (4) they are
more likely to invest increased income in
the household and family well-being.
Originally based on the Grameen
Bank model, AIM’s role has now gone
Originally based on the
Grameen Bank model, AIM’s
role has now gone beyond
microfinance. Its function
has expanded to create
entrepreneurs among its
borrowers. AIM creates jobs
by producing entrepreneurs
among the poor, especially
in small- and medium-sized
enterprises
beyond microfinance. Its function has
expanded to create entrepreneurs
among its borrowers. AIM creates jobs
by producing entrepreneurs among the
poor, especially in small- and mediumsized enterprises. In recognition of its
role in creating entrepreneurs, AIM was
mandated by the government to develop
4,000 female entrepreneurs under the
Economic Transformation Programme to
support women’s economic participation.
The aim is to empower women, promote
gender equity and improve household
well-being as people increasingly
recognise the contribution that women
can make in helping Malaysia build a
sustainable economy. In fact, almost 100%
of entrepreneurs created under the AIM
financing scheme are women, with a focus
on single mothers and housewives with
no fixed income. AIM has exceeded their
target thus far, enabling these women
entrepreneurs to consistently earn RM3,500
a month.
Challenges
Microfinance has evolved from providing
just microcredit to being about building
an inclusive financial system that includes
a wide range of financial products such
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as microsavings, insurance and money
transfer via mobile banking.
However, it is not without its
challenges, which include funding.
Continuous expansion of this initiative is
highly dependent on not only availability
but also sustainability of funds. Most
microfinance institutions are highly
dependent on donors for funding and
it is no different at AIM, where more
funding is required to support its outreach
programmes and grow loan sizes offered
to borrowers.
Apart from that, it is also plagued
with a challenge that most industries
are facing these days – human capital.
The microfinance industry requires more
qualified human resources who are
competent and knowledgeable about
the business to aid its expansion. Locations
such as Sabah and Sarawak pose a real
challenge for market outreach as they
need more resources and manpower to
reach out to people in rural areas.
Outlook
Despite these challenges, the microfinance
sector in Malaysia has moved towards longterm growth and sustainability. AIM aims to
turn 30% of its existing number of Sahabat
into successful microentrepreneurs by
2015. To achieve this target, RM2 billion
has been allocated to help them in their
cause for expansion.
Datuk Hajah Zabidah Ismail is
currently the Managing Director
of Amanah Ikhtiar Malaysia
(AIM), having held the position
since 2 January 2006. Prior the
this appointment, she has held
several leadership positions at
Bank Bumiputra Malaysia Berhad
and Bank Muamalat Malaysia
for more than 20 years. She is
currently serving as Treasurer at
the Association of Development
Financial Institution Malaysia as well
as council member of the Women
Entrepreneurs and Micro Enterprise
of SME Corp.
Digital Financial
Services for
Financial Inclusion
Providing financial services to meet the
needs and motivations of the poor
by Graham
Wright
Group Managing
Director, MicroSave
F
inancial institutions trying to serve
the mass market rarely seem to have
the time to conduct market research
and feasibility analysis studies necessary
to identify prospective clients’ real needs,
aspirations and motivations. Many rely on
1
‘bathtub’ product development – product
ideas developed on the basis of the senior
management team’s experience and gut
instinct; which are then often rolled out
without any pilot-testing or consultation
with the target market. Others prefer
the ‘me too’ strategy – they simply wait,
watch and copy products offered by their
competitors.
India’s ‘No Frills Account’ or NFA1 , rolled
out by a wide variety of banks, are a case
in point. Introduced in 2005, the NFA was
perceived as the springboard for financial
inclusion and as a means to encourage
savings habit. Although the number
of account openings was impressive, a
majority of them were either inactive or
dormant. Active accounts were, on the
other hand, used for cash withdrawals
only with no or little appreciable difference
in savings. Despite the government’s
attempts to push conditional cash transfers
through these accounts, the level of
dormancy was as high as 80-90%.2
M icroSave’s research into this
phenomenon revealed that there were a
series of features to which poor people
aspired and needs that they could clearly
The generic name of this account seems almost designed to brand it as a poor-quality offering; a cue taken further by one leading bank that offered their No Frills Account
as the “Tiny Account” so that the users felt really insignificant to the bank.
2
See Kochhar, Sameer, Speeding Financial Inclusion, Skoch Development Foundation, 2009
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Digital Financial Services for Financial Inclusion
Growth of Agents
5,004
1,636
2,301
2,797
3,234
5,496
6,344
6,892
3,991
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2011
2011
2011
2011
2012
2012
2012
2012
2013
2,500
4,000
3,500
2,000
3,000
2,500
1,500
2,000
1,000
1,500
1,000
500
500
-
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2011
2011
2011
2011
2012
2012
2012
2012
2013
Withdrawals and Deposits in ‘000
Customers and Transactions
Customers enrolled in ‘000
articulate. Even more pronounced is that
poor customers were willing to pay for
these services.3 Comparable trends were
evident in South Africa. The poor wanted
an account that is similar in functionality
and status to mainstream bank accounts.
They were also willing to pay for this in
preference to getting substandard services
(and brand) in the name of low-cost
services.
A series of research conducted by
MicroSave across Africa and Asia has,
over the years, highlighted that lowincome earners not only want but more
importantly need financial services that
are convenient, accessible, affordable,
appropriate and reliable. These services
must also be consistently available on
demand. A single-transaction account like
the NFA is unlikely to meet these criteria,
particularly when delivered through
traditional banking branch infrastructure.
Typically, the four basic features that
financial services for the poor must have
are:
• Convenience requires proximity
and longer opening hours – most
obviously through a distributed agent
network.
• Accessibility often necessitates ATM
cards or mobile money solutions
to obviate the need to negotiate
overcrowded branches, complex
forms and intolerant bank staff. This
criterion is highly likely to require us to
rethink how we communicate about
products and services to the poor. 4
• Affordability needs to encompass
direct costs (transportation to the
branch and full-day trip necessities),
indirect costs (lost wages and other
opportunity costs) and hidden costs
(bribes and commissions for filling
up and processing forms). These
costs are on top of the ‘on-the-board’
fees / interest rates that are formally
charged by a bank.
No. of customers enrolled
No. of withrawals
No. of deposits
•
Appropriateness must reflect how
poor people live as well as how they
think about and manage their money.
Poor people’s need for appropriate
produc ts means that they need a
range of products to reflect their life
cycle needs such as birth, marriage,
death and education. They also need
disciplined systems that break down their
accumulation of lump sums into small
manageable amounts either by saving
up, saving through or saving down. 5
3
See MicroSave Policy Brief 4: The Answer is ‘Yes’ – Cost and Willingness to Pay in India
4
See MicroSave Briefing Note # 112 Financial Education: Time for a Re-Think?
5
See MicroSave Briefing Note # 13 Money Managers: The Poor and Their Savings
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Contrary to popular belief, the poor want
to save and have the capacity to do so in
modest amounts. Hence, products used to
accumulate lump sums should ideally be
differentiated and earmarked for specific
needs, in the same way that poor people
often earmark specific income streams
for specific uses to help with their mental
accounting. For example, savings for a
bicycle, to buy some land and for old age
are very different in terms of the time
horizons and instalment amounts.
Digital Financial Services for Financial Inclusion
Financial Needs
Outcomes
Savings, credit
Birth,
Education, Marriage
Prepare
for old
age
Savings, simple
pension products
Credit and cash
management,
insurance
Enhanced ability to manage
planned financial needs
Working
Life
Deal with
emergencies
Enhanced household
capacity to manage
shocks and vulnerabilities
Improved social,
educational and
financial status
Short-/long-term
credit facilities or
savings services
Support
others
Insure Assets
Leveraging
opportunities as
they arise
Asset, illness,
death insurance
Remittances
S i m i l a r l y, l o a n s fo r a m e d i c a l
emergency and for investing in a fixed
asset are very different in terms of size
and structure, as well as the pace at which
they need to be appraised and disbursed.
This has very important implications for
financial institutions seeking to offer a
range of products to the lower-income
market segment. They should be mindful
that a single-transaction account will not
help manage a series of complex savings
goals and a standard working capital loan
repayable in weekly instalments over a
year is only appropriate for a limited set
of business people. As a bare minimum,
poor people need a suite of products that
includes:
•
A transaction or very basic savings
account linked to a reliable and
efficient payments/remittance system
that is not too costly;
•
•
•
Recurring deposit accounts for
different goals with an attached
overdraf t to which the y have
automatic and immediate access –
up to 90% of the value of the amount
deposited;
A general short-term (up to one year)
loan that can be used for working
capital as well as consumption
smoothing, education, etc.;
A longer-term loan secured against
assets acquired with the loan.
Although the financial services needs
of the poor are pretty well-defined and
clear, meeting these demands through
traditional financial infrastructure is
particularly challenging. While the Grameen
Bank II system6, Equity Bank in Kenya7 and
a handful of others go a long way towards
achieving this; most banks struggle to
6
see an adequately robust business case
in offering this range of products to the
poor. The seminal Portfolios of the Poor
highlighted how active poor people are
when managing money and how many
small transactions they undertake to
optimise the use of their meagre resources.
“High volumes of low-value transactions”
is the perfect description of a traditional
banker’s nightmare. However, as Equity
Bank (one of the most profitable banks
in Kenya) has shown, a judicious mix of
clients and products backed by a deep
commitment to customer service can
indeed allow banks to serve the lowincome market and keep even the most
demanding of shareholders very happy.
Equity Bank is now pioneering the
use of electronic and mobile banking
(e/m-banking) channels to deliver its
services as well as a range of products
See MicroSave Grameen II Briefing Note # 8 Lessons from the Grameen II Revolution and Portfolios of the Poor Briefing Note # 7 Grameen II and Portfolios of the Poor
7
See MicroSave Briefing Note # 63 The Market-Led Revolution of Equity Bank
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Digital Financial Services for Financial Inclusion
tailored specifically for sales and service
delivery through these channels. This has
the potential to, once again, revolutionise
banking for the poor in Kenya. The
introduction of the agent-based services
has resulted in a massive uptake both in
number and value of transactions.
The bank now has over 6,800
agents and over 2.3 million customers
had registered for agency banking.8 The
number of transactions carried out at
the agency level has also surpassed that
recorded at branches. In the first quarter of
2013, the bank’s total branch transactions
were two million whereas transactions
at agents continue to climb at the rate
of 100,000 per month to register 2.2
million from 1.4 million in 2010. Over half
a million dormant accounts have been
reactivated since the introduction of the
agent-based banking services in May 2011.
This is a clear demonstration of how the
underbanked clients are responding to
Although the financial
services needs of the poor
are pretty well-defined
and clear, meeting
these demands through
traditional financial
infrastructure is particularly
challenging
the new convenience and accessibility of
affordable and appropriate services.
Equity Bank’s business strategy of
leveraging on technology to cut costs
and build a sustainable business case for
offering a range of financial services to
a broad customer base encompassing
the poor has been a game changer. 9
Whether other banks will be ready, willing
or even able to follow Equity Bank’s
success story remains to be seen. There
are four important conditions precedent
to support Equity Bank’s bold move. First
and foremost was the introduction of
M-PESA, which is a mobile-based money
transfer system that allows users to deposit,
withdraw or transfer money using phones.
Through M-PESA, people in Kenya are able
to carry out branchless banking via mobileto-mobile transfers. This has created an
environment in which managing money
on a mobile phone is accepted and trusted
by the vast majority of the population. The bank has also already made large
investments in IT platforms and is therefore
oriented towards optimising the use of
technology. Thus, it does not face the firstmover disadvantage that plagues pioneers
of digital financial services. Secondly, Equity
Bank’s commitment to customer service
and to serving a wide range of clients with
a range of financially inclusive products has
enabled it to look at optimised channels to
8
See MicroSave Briefing Note # 140 Success Factors of Equity Bank’s Agency Banking
9
See MicroSave Briefing Note # 97 The Business Case for Branchless Banking: What’s Missing? and # 100 Can Bank-Led Models Really Deliver on the Promise of Mobile Money?
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Digital Financial Services for Financial Inclusion
broaden and deepen its reach. The bank
has also invested in the development of a
well-staffed market research and product
development team who focus relentlessly
on understanding customer perspectives
and needs. Finally, as a pioneer, Equity
Bank has been able to access donor funds
to support its foray into agent-based
banking with technical assistance, primarily
from MicroSave and Bankable Frontier
Associates.
These developments have profound
implications for financial inclusion as
well as the delivery of products and
services that respond to the needs of
the poor. They highlight the need for
collaboration between banks, telcos, the
government (particularly in the context
of payments) and other parties (such as
utility and financial service providers). This
collaboration is a growing phenomenon
in Kenya10 as well as other markets where
digital financial services are taking off.
While often difficult, such collaboration is
essential if we are to achieve real financial
inclusion and not just what one expert calls
“low equilibrium financial inclusion”. 11
M-PESA is a truly remarkable success
as a payments system, but amid the
attendant euphoria, we should not lose
sight of the fact that it is only used on
average twice a month at a cost of around
$0.35-0.50 per transaction by each user
in the form of remittance, payment or
transfer. Although M-PESA fulfils the first
three features of convenient, accessible
and affordable; it is still not widely seen as
an appropriate system on which to save
(see Box 1).
This also has significant implications
for large banks and insurance companies.
In Kenya, major international financial
institutions are unsure how to respond to
the growing market share of Equity Bank
Box 1
“M-PESA is like having a bank account in your pocket. Your money can be
given to you anytime by anyone. This is convenient, but then you end up
spending much more. For example, when I am not driving my taxi, I tend to
make calls and use more money just because I can transact using M-PESA.”
“M-PESA is a communication company. Equity are money people. People
have more faith in banks, if [the] M-PESA name was replaced with Equity, it
would be a huge hit!”
- Respondents in focus group discussions for MicroSave’s M-PESA Rails Study
– often flirting with going downmarket
and then retreating their traditional, more
affluent customer base. Others, such as
the British-American Insurance Company
have collaborated with the bank 12 to
significantly increase their sales and market
outreach. MicroSave, on the other hand, is
working with Equity Bank to optimise the
use of the agent network to sell and service
insurance policies.13
Technology has affected and changed
banking with the many benefits and
convenience digital financial services
has created. New technologies offer
creative banks and insurance companies
a whole new range of opportunities to
deliver products without the need for
traditional physical infrastructure. They also
decongest their banking halls and reach a
lower-income market – many of whom will
be tomorrow’s middle-income consumers.
Technological progress offers tremendous
opportunities to radically enhance the
scope and scale of financial inclusion on a
profitable basis for banks.
However, if we are to achieve real
financial inclusion, we must be able to
(1) offer the poor a range of savings,
credit, payments and insurance products
tailored to their needs, aspirations and
mental accounting (and not just minimalist
versions of traditional products); (2)
communicate the products and the
opportunities they offer in clear, concise
client language; and (3) leverage new
technologies to deliver these products
in a convenient, accessible, reliable and
affordable manner. Given the emerging
technologies for digital financial services
and what we already know, designing and
delivering products for the low-income
market is clearly achievable.
Graham Wright is MicroSave’s
Group Managing Director, leading
a team of 100 consultants in offices
across Africa and Asia. He has two
decades of experience working with
banks, MFIs, MNOs, regulators and
international funding agencies in
Bangladesh, India, the Philippines,
Indonesia and Vietnam as well as
throughout East and southern Africa.
He also oversees the Knowledge
Management and Training, Digital
Financial Services and Responsible
Finance practice domains within
MicroSave.
10
See MicroSave Briefing Note # 93 Innovation and Adaptation on the M-PESA Rails
11
Or put simply, “the poor-quality, high-cost and potentially high-risk ‘financial inclusion’ associated with telco-driven payments-only systems” – see MicroSave Briefing Note #
95 Do the M-PESA Rails Contribute to Financial Inclusion?
12
Specifically, the bank’s Equity Insurance Agency as the regulator does not explicitly allow bancassurance.
13
See MicroSave Briefing Notes # 123 Agent Banking and Insurance: Is There A Value Alignment? and # 124 Insurance Through Bank Agents: How Can It Be Done?
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PwC
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Advocating Financial
Inclusion in Malaysia
AKPK drives financial literacy forward as the nation
looks towards an all-inclusive financial system
O
ver the decade, financial inclusion
has taken a front seat in various
development dialogues and
is now a common objective of many
policymakers and regulators across the
globe. The United Nations, for example,
has identified four main goals of inclusive
finance, particularly to low-income
segments of society: (1) reasonable cost
for services, (2) sound institutions and
prudential regulations, (3) financial and
institutional sustainability, and (4) multiple
providers of financial services.
Financial inclusion is important
because it is a necessary condition for
sustaining equitable growth. In Malaysia
and elsewhere around the world, easing
access to financial assistance for the
underprivileged is now viewed as an
essential step in battling poverty. As
highlighted by Tan Sri Dr Zeti Akhtar Aziz,
Governor of Bank Negara Malaysia, in
her welcoming address at the Financial
Inclusion Policymakers Forum, about 2.7
billion adults in the world economy are
currently excluded from the financial
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system. This has huge implications on
economic and societal growth, especially
in the context of economic development
and poverty alleviation. By bringing the
unbanked population into the formal
financial system, they now have the chance
to strengthen their development, prosper
and contribute to economic growth.
With this in mind, it is crucial to
enable diverse segments of the economy
– regardless of income level, economic
activity and locality – to have access
to financial services. This does not only
Advocating Financial Inclusion in Malaysia
point to the poor and marginalised, it
also promises sustainable progress and
development for those who are struggling
within the system. Advocates of this
agenda are training their efforts on building
steps that will benefit both financial
services providers and consumers. They
are also looking into measures to eliminate
access barriers without interfering with
growth. But apart from that, one of the
foremost measures in executing this
agenda is to create awareness as well as
increase financial literacy. This is where
Agensi Kaunseling dan Pengurusan Kredit
(AKPK) or the Credit Counselling and Debt
Management Agency comes in.
An agency set up by Bank Negara
M a lay s i a , AK P K wor k s to i ncreas e
consumers’ financial knowledge and
access to financial services to ensure
their continuing financial inclusion. This is
achieved by offering three gratuitous core
services to address consumers’ prevailing
financial situation and to provide longerterm solutions by improving their level
of financial literacy through financial
counselling, debt management services
and financial education.
Conducted at its 11 branches and
nine credit counselling offices nationwide,
AKPK’s financial counselling services
are performed on a one-to-one basis
to ensure privacy and confidentiality.
During the financial counselling sessions,
AKPK’s counsellors provide individual
consumers guidance on managing their
money and maintaining control over
their finances. As at 31 May 2013, a total
of 222,942 consumers have attended
financial counselling sessions and about
90,807 consumers (40.7%) who were
counselled chose to enrol into AKPK’s debt
management programme (DMP).
Meanwhile, AKPK’s debt management
services enable over-indebted consumers
to restructure and/or reschedule their loan
instalment payments in consultation with
their respective credit providers. In this
regard, AKPK provides an avenue to those
who are heavily indebted to get back on
AKPK believes that its
financial education and
counselling services
prepare its target segment
of the population such as
young adults, employees
of private and public
institutions, microfinance
entrepreneurs,
underprivileged groups,
single mothers and future
retirees to be financially
included
their feet and take charge of their finances
once again by extending assistance in
restructuring their borrowings. This is
achieved through the DMP process.
Firstly, the customer’s financial position
is established by determining his/her
monthly income, expenses and areas of
potential savings. Secondly, the customer
declares all loan facilities and latest loan
balances. AKPK then negotiates with the
customer’s credit providers and obtains
the credit provider ’s agreement for
DMP. Following this, AKPK issues a DMP
confirmation letter to the customer, who
may be required by the credit provider to
sign new loan documents upon enrolment
into the DMP.
The DMP provides numerous benefits
for consumers. For instance, it offers
reasonable repayment terms based on
the customer’s available cash flow as well
as moratorium on the credit provider’s
legal proceedings. Those who enrol
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into the programme can also expect
cessation of calls and harassment from
debt collectors as they get their life back
on track financially.
Consequently, AKPK’s financial
counselling and debt management
services have helped many Malaysians who
have been blacklisted due to their inability
to service their financial obligations regain
control over their finances and access
credit facilities. AKPK’s Chief Executive
Officer, Koid Swee Lian, revealed that the
percentage of young Malaysians facing
debt default has now reduced to 10%
from 15.8% in 2009. These young financial
consumers are now more financially savvy
with most preferring to use debit cards
instead of credit cards.
The most common reason for
defaulting in servicing debt, according to
her, is poor financial planning – although
many of them also get caught in this debt
trap due to lack of understanding on
the impact of high interest rate charges
on loans and credit cards. Thus, AKPK
is making financial education a top
priority. AKPK’s main role here, she said,
is to empower consumers with essential
financial knowledge that will help them
make prudent financial management a
way of life.
I n light of this, AKPK has also
embarked on financial education initiatives
aimed at enhancing the public’s financial
knowledge and understanding, enabling
them to continue to be financially included.
This is vital to facilitate their effective
participation in a financial system that is
dynamic and fast-evolving, as we now
observe a proliferation of financial products
and services as well as the emergence of
electronic finance.
In this regard, AKPK promotes adult
consumer’s good money management
skills and financial prudence through
publications such as books, money- and
finance-related articles, an informative
and educational website (www.akpk.
org.my) for online reference/response, a
microblog on finance and credit issues
Advocating Financial Inclusion in Malaysia
In Malaysia and elsewhere around the world, easing access to financial assistance for the
underprivileged is now viewed as an essential step in battling poverty
(www.moneypower.my) and monthly
e-newsletter ReadSens.
AKPK also recognises the importance
of the financial inclusion of university and
college students into the formal financial
sector, where they can grow and build their
wealth upon graduation. In this regard,
AKPK collaborated with the Ministry of
Higher Education to provide its Personal
Financial Management Module, which
is developed specifically for students
at institutions of higher learning. The
module was accredited by the Malaysian
Qualification Agency and to date, 74
tertiary education institutions nationwide
have adopted this module as an elective
subject. Upon completion of the module,
students are awarded one credit hour.
In addition, institutions of higher
learning also require their students to
attend AKPK’s POWER! Programme before
graduation. The POWER! Programme
covers cash flow management,
borrowing basics, wise usage of credit
cards, information on buying a house
or car as well as managing one’s debts.
This education initiative will hopefully
decrease vulnerability to fraud and scams
as well as prevent misunderstanding of
financial products and systems. It also
aims to increase proficiency in financial
knowledge, which will contribute towards
greater empowerment and competent
financial decisions.
The ease of obtaining credit cards
and the voraciousness of advertising
campaigns in promoting lifestyle goods
has brewed the perfect storm in the
generation of young people with
unmanageable debt levels. Add to this
is the relative lack of financial discipline
that is not ingrained in today’s generation.
Hence, financial education programmes
championed by AKPK for the youth and
younger generation, according to Koid
Swee Lian, are important in avoiding the
generation debt trap that will have dire
consequences if left unchecked.
As indicated by Tan Sri Dr Zeti,
the number of individuals who remain
excluded from the financial system
suggests that there is still much room for
improvement and while many challenges
remain, the outcome will be well worth the
efforts made. AKPK believes that its financial
education and counselling services prepare
its target segment of the population such
as young adults, employees of private
and public institutions, microfinance
entrepreneurs, underprivileged groups,
single mothers and future retirees to be
financially included. These consumers
are empowered through enhanced
financial capability to determine how
they can receive quality financial services
and products at reasonable prices with
convenience, respect and dignity.
The Credit Counselling and Debt
Management Agency, or commonly
known as Agensi Kaunseling dan
Pengurusan Kredit (AKPK), is an
agency set up by Bank Negara
Malaysia in April 2006 to help
individuals take control of their
financial situation and gain peace of
mind that comes from the wise use
of credit. It aims to promote financial
wellness by empowering individuals
through financial education, credit
counselling and debt management
programmes.
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Going beyond the
conventional
Banking beyond branches may just be the game
changer the financial services industry needs
W
hile governments and
stakeholders in the financial
services industry have begun
to recognise the importance of including
those in the low-income bracket, there
is still a rift between acknowledging the
problem and putting thoughts into action.
In achieving this ideal, banks have to take
into consideration logistics and cost in
expanding their reach. Setting up and
operating a bank branch can be expensive,
which is why an increasing number of
banks now look to banking beyond
branches (3B) as a solution. The 3B service
provides an additional banking channel
for banks to deliver banking services,
particularly to the underserved in a more
cost-efficient manner through a network
of agents and without the need to set up
physical branch infrastructure.
As the pioneer in providing this
service in Malaysia, Bank Simpanan
Nasional (BSN) offers this banking model to
the Malaysian public with the objective of
providing easy access to banking products
and services, especially to those living in
remote and rural areas. As for those living
Working towards a vision
that encompasses financial
advancement for the poor,
banking beyond branches
will not only ensure
economic sustainability but
also increase the overall
stability of the financial
system
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in urban areas, this model can also act as an
alternative banking channel and provides
a safe option for performing banking
transactions without the need to set up
any brick-and-mortar branches. Hence,
the 3B service enables BSN’s customers to
perform banking transactions conducted
by authorised agents at retail outlets.
Branchless banking
The 3B service began in 2012 in support of
the Malaysian government’s call to elevate
the standards and quality of living of
those in rural communities and to provide
banking accessibility to the underserved.
Prior to the introduction of the 3B service,
only 40% of the total 837 mukim (subdistricts) in Malaysia had been served. As
at 30 April 2013, almost 90% of mukim are
now enjoying the convenience of banking
services right at their doorstep.
Going Beyond the Conventional
The 3B model utilises the services
of appointed agents who must have
existing accounts with BSN to perform
banking transactions under this concept.
As at 31 May 2013, 4,000 agents have been
appointed by BSN nationwide and the
bank targets to have 5,000 agents by the
end of 2015. In ensuring it reaches wide
coverage, the bank appoints mainly retail
shop operators such as sundry shops and
phone retailers as its agents throughout
the country.
BSN also collaborates with companies
such as PETRONAS, which is the largest
petrol dealer in Malaysia, to engage
their petrol station operators as agents.
In addition, BSN has collaborated with
government agencies such as the Federal
Land Development Authority (FELDA)
and the Federal Land Consolidation and
Rehabilitation Authority (FELCRA) to
appoint agents among its cooperatives
at both FELDA and FELCRA schemes
throughout the country.
To facilitate banking transactions
at an agent’s premise, a small pointof-sales (POS) gadget complete with a
The 3B service began in 2012
in support of the Malaysian
government’s call to elevate
the standards and quality
of living of those in rural
communities and to provide
banking accessibility to the
underserved
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biometric thumbprint reader is installed
at the premise. The POS terminal is used
to validate the identity of customers and to
print transaction slips for transactions made.
In addition, the POS terminal connects to
the bank’s systems via 3G connectivity,
which allows for all transactions performed
at the agent’s premises to be online and
real-time to protect transaction security.
Currently, five types of transactions can be
made using this gadget – cash withdrawals
and deposits, purchase of BSN’s Savings
Certificate (SSP), bill payments and
cashless payments. By the end of this year,
customers will be able to perform more
transactions via POS including opening a
savings account with the bank.
Traditionally, customers who live in
suburban and rural areas may have to travel
between five to six hours to the nearest BSN
branch to conduct a banking business. This
Going Beyond the Conventional
As the pioneer in providing this service in Malaysia, Bank Simpanan Nasional (BSN) offers this
banking model to the Malaysian public with the objective of providing easy access to banking
products and services, especially to those living in remote and rural areas
is even more prominent for those living in
Sabah and Sarawak as they may even have
to travel by boat to visit the nearest branch.
But now, with handheld POS gadgets
that work on GPRS mobile data service
with real-time connectivity, a
typical transaction takes only
about 45 seconds to complete
and without having to go to
a physical banking facility or
having to travel outside of the
village.
In comparison to a typical
branch, operating hours are
also longer under the 3B model
as agents are required to open
their outlets from 8 am until
10 pm daily, seven days a
week. For urban customers
who previously had to travel
to BSN branches, 3B provides
a convenient and comfortable
way to perform transactions
as banking traffic no longer
becomes an issue.
queuing in the banking hall waiting to
be served or spending unnecessary time
driving around in search of parking. Fewer
customers at the counter also means more
time available for staff to focus on cross-
Advancing financial
innovation
This innovation has also
changed the way people perceive banking.
Instead of walking into a typical bank to
perform transactions, customers now have
the option of banking while performing
cashless purchases at their local grocery
store or at any of the 4,000 appointed
agents located all over Malaysia. Customers
not only enjoy the convenience of banking
long after banking hours are over but
also no longer need to waste their time
introduction of 3B as BSN need not invest
heavily to start and operate typical brickand-mortar branches or off-premise ATMs.
Currently, BSN is only limiting banking
transactions (except for bill payments) via
3B agents for its existing account
holders. As a result, approximately
15,000 new account openings
have been registered through
awareness programmes conducted
at selected agents’ location since
the 3B innovation was launched.
Going forward, there are plans
to allow users of other banks to
per form banking transactions
through the MEPS network. This
is testament to the fact that BSN
is tak ing innovative steps to
redefine the bank by introducing
models that work for low-income
earners. Working towards a vision
that encompasses financial
advancement for the poor, banking
beyond branches will not only
ensure economic sustainability but
also increase the overall stability of
the financial system.
Bank Simpanan Nasional was
launched in 1974 with the aim of
selling other banking products. Via the
3B platform, the bank can also promote
other banking products to customers. As
a matter of fact, BSN has started selling its
Premium Savings Certificate through its
agents and the outcome has so far been
encouraging.
The 3B innovation has also benefitted
BSN in terms of cost savings in expanding
its network. This is apparent after the
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improving the economic well-being
and quality of life of Malaysians
by actively promoting savings,
investment and the practice of
sound financial management. The
organisation continuously enhances
its services and expands its range
of products for the benefit of its
customers.
Professionalising the
microfinance sector
Asian Institute of Finance leads human
capital development in Asia
T
he role played by regulators, NGOs,
donor bodies and conventional
banks in the execution of the
microfinance agenda is key to its success.
Underpinning this is human capital,
which is recognised as a crucial enabler
in this undertaking. Recent industry
surveys have consistently ranked human
capital challenges such as management
quality and staffing gaps as major risks
facing microfinance institutions (MFIs).
At the heart of this is professionalising
human capital in the industry, which
is fast becoming a differentiator in the
marketplace.
Spearheading this initiative, the Asian
Institute of Finance (AIF) has developed the
AIF Microfinance Management Programme
(AMMP) as a leading-edge programme of
activities with a strong practitioner focus
to build management leadership capacity
within the industry. The programme –
taught by dynamic international experts
– consists of nine modules conducted
over three clusters. Each cluster consists of
a four-day programme, with an evaluation
conducted at the end of each cluster.
As part of the programme, participants
will take a field trip to visit a microfinance
project and learn about microfinance
models on the ground. Here, participants
are able to blend their learning with
real-life practical experiences. Cognisant
of the fact that learning is optimised
when the methods used are suitable
for the participants, the AMMP employs
adult learning methodologies that are
highly interactive. Thus, presentations
of key principles are augmented with
international best practices, sector-based
case studies as well as other creative class
exercises to encourage group discussions
and foster understanding.
As a whole, the AMMP is flexibly
designed, with each cluster and module
as shown below.
Cluster 1
Cluster 3
Cluster 2
Introduction to
Basic Microfinance
Delinquency
Management
Business Planning
Social Performance
Management
Financial
Management
Product
Development
Risk Management
Governance &
Human Resource
MIS & Appraisal of
MFIs
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Professionalising the Microfinance Sector
The AMMP is AIF’s
contribution towards
professionalising the
microfinance sector in
Asia by promoting greater
financial literacy and
awareness in the area
of microfinance and
microlending
The nine modules below can be
taken independently by participants
who aspire to earn the title of ‘Certified
Microfinance Professional’ (CMP) upon
the satisfactory completion of all modules.
Prospective participants may also enrol
and take any particular clusters or relevant
modules that would address their specific
concerns. Having said that, completion
of all nine modules is encouraged both
for a more holistic grasp of the subject
matter as well as graduation with CMP
certification. The AMMP offers discussions
on the latest global and regional trends
and developments in microfinance
technologies, policies, regulations and
methodologies as well as some of the
best practices affecting the world of
microfinance.
Just to provide an example of the
coverage of the programme, for Cluster
1 (as seen in the earlier chart), the three
modules offered are: (1) Introduction to
Basic Microfinance; (2) Social Performance
Management; and (3) Risk Management.
The Introduction to Basic Microfinance
provides a quick review of microfinance
by analysing current and historical
perspectives of microfinance and its link
to financial inclusion. The module also
tackles models of microfinance lending,
discussion on various stakeholders as
well as the legal and regulatory issues in
microfinance. Participants also look into the
different products and services currently
offered by microfinance institutions (MFIs).
Finally, this module extensively discusses
challenges, trends and developments in
the microfinance industry, which include:
(a) credit pollution; (b) governance issues;
(c) government policy; (d) technologies;
and (e) double bottom line issues for
MFIs. Discussions centre on transparency
and disclosure, consumer protection and
various standards being employed to
look at the operations of microfinance
institutions.
The second module, which is on
Social Performance Management in
Microfinance, provides participants with
critical input and key tools to analyse the
claims that microfinance programmes
help alleviate poverty. Through Social
Pe r fo r m a n c e M a n a g e m e n t ( S PM ) ,
microfinance institutions and other
institutions undertaking or providing
microfinance programmes and services
should be given the right tools to avoid
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mission drift. Through SPM, the balance
between social and financial missions
are critically dissected and analysed and
this is why SPM is fast becoming the new
focus in microfinance. The SPM session
also discusses in depth case studies from
other parts of the world that highlight
the challenges and practice of SPM.
Case studies cement the principles and
practices taught in the session.
The third module on risk management
provides participants with an introduction
and overview of the notion of risks
and risk management. This particular
session discusses the Risk Management
Framework and the Risk Management
Loop as adapted to the implementation
of microfinance programmes. Finally,
the session looks at the various risks
that microfinance institutions as well
as institutions providing microfinance
programmes are facing. These risks are
divided into four categories: (a) financial
management risks; (b) operational risks;
(c) strategic risks; and (d) institutional
risks. In group discussions; participants
diagnose, dissect, argue, frame and defend
their individual and group positions via
a case study that focuses on the various
Professionalising the Microfinance Sector
Participants at the recent AIF Microfinance Management Programme
risks and frauds that hit a bank offering
microfinance services. For a brochure with
full programme details, please visit our
website at www.aif.org.my.
The three-day session is capped with
a written assessment to gauge participants’
appreciation and knowledge of the three
modules. The majority of the participants
hold middle to senior management
positions in their respective organisations
and all have given the programme a huge
thumbs up.
T h e p r o g r a m m e , w h i c h w a s
successfully launched in 2012, has received
overwhelming participation from local and
international practitioners. Participants
also benefitted from the networking
opportunities during the course of the
programme and exchanged ideas and
knowledge of their own organisation’s
experiences in the area of microfinance.
D u r i n g t h e re c e n t AM M P c o u r s e,
participants were taken on a field trip to
Cameron Highlands with a night’s stay
in Ipoh. This presented an opportunity
to view the microfinance and banking
beyond branches operations of a major
financial institution, followed by site visits
to agriculture enterprises that benefited
Recent industry surveys
have consistently ranked
human capital challenges
such as management
quality and staffing gaps
as major risks facing
microfinance institutions
(MFIs)
from the microfinance provided by the said
financial institution.
“I like the use of examples and
videos to help me understand
the whole idea. The programme
has made me think about how I
can work differently to promote
customer social responsibility in
my organisation.” - Azila Mohd
Nordin
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“I am excited to adopt SPM
as it is actually relevant at my
workplace.” - Kristina Bah Uda
“I like the practical tools related
to microfinance that have been
taught in the programme. I find
them useful and relevant to
the project that I am currently
working on. I will also apply the
indicators used in SPM for my
future reports and analysis.”
- Hasmiron Hamdan
The AMMP is AIF’s contribution towards
professionalising the microfinance sector in
Asia by promoting greater financial literacy
and awareness in the area of microfinance
and microlending. We believe this will go a
long way towards supporting the financial
inclusion agenda outlined in Bank Negara
Malaysia’s Financial Sector Blueprint 20112020. Furthermore, AIF’s structured AMMP
microfinance programme also supports
the training needs of microentrepreneurs
as there is currently none available. Aptly
put by Datuk Zabidah Ismail, Managing
Director of Amanah Ikhtiar Malaysia
(Malaysia’s largest microcredit institution):
“M icroentrepreneurs need tailored
programmes to fulfil their special needs.”
Making Financial
Literacy Education
a Priority
A look at how important it is to equip the young with the
necessary tools to make sound financial decisions
by Brandon Liew
CEO, MoneyTree
Malaysia
T
he recent financial crisis had
been a rude awakening about the
hard reality that our society lacks
the financial literacy skills for a modern
economy. All around, we have created
a society in which consumers are in
charge of their financial well-being but are
woefully undereducated and ill-prepared
to take on the responsibility of managing
it.
The need to make sound financial
decisions has confronted generations of
the past. Evidence suggests that financial
literacy requirements have been increasing
in the past decade. Individuals are faced
with so many financial decisions as well
as the growing diversity and complexity
of available financial products. The rise of
debt and the fall of entire economies as
well as more credit borrowings but less
understanding of how banks work have
become the paradox of our time. It is now
more urgent than ever to instil financial
wisdom into our society. It is really quite
simple – we either allow money to have
control over us or we can learn how to
control money.
Educating the Young
Today ’s consumers are constantly
bombarded by inducements to borrow
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money – be it credit card offers, refinancing
on mortgages or personal loans. I am
quite sure everyone has had the familiar
experience of being approached by credit
card promoters in shopping malls. Many a
time, these promoters would offer freebies
if you apply for a credit card on the spot!
What message are we giving our future
generations? Instant gratification for free?
If anything underscores the urgency of
financial literacy, this surely does.
The current economic downturn
has forced many people to become
more money-savvy and take greater
responsibility for their personal finances.
The baby boomers and Generation X went
through at least two major economic
depressions in the past three decades.
They understand the need to have funds
reserved during an economic downturn.
Making Financial Literacy Education a Priority
That is why they very much welcome the
financial literacy programme for children.
They see the need for their children to be
better prepared than they were.
Studies have shown that students
and young consumers who are educated
about financial matters and equipped
with financial skills at a young age are
more likely to display positive financial
behaviours. They are more likely to save
money, less likely to max out their credit
cards, less likely to make late credit card
payments and less likely to be compulsive
buyers. Hence, improving access to quality
financial literacy education is crucial
because it helps in building financial
capability.
Putting the Fun in Finance
The severe lack of financial literacy in
children and youths is a dangerous status
quo – a huge gap that is not addressed
by the current education system. At
MoneyTree, we know that it is essential
for people to understand money and how
to manage it. Most importantly, we know
it is critical to start them young. After all,
understanding money is one of the most
crucial factors that determine success in
our adult lives. That is why our ambition
is to make financial literacy not only
accessible but compelling for the young.
MoneyTree’s purpose is to equip
children and youths with the tools and
knowledge for a better financial future.
Our secondary goal is to gestate the next
generation of entrepreneurs who will be
engines of innovation, wealth creation
and ultimately, economic development.
We want to give our children and youths
a real head start.
But today’s education is taking the
fun out of learning. As a society, we are
much too dependent on a ‘push’ education
system. Children are being pushed to
piano classes, karate classes and art classes.
Youths are being pushed into universities
by their parents. This makes education
not only unappealing, but also highly
unsustainable.
If we want education to really make
a difference, we have to get children
and youths to want to be educated. For
this to happen, education needs to have
a pull factor. That’s why MoneyTree’s
programmes centre around the concept
of ‘learning through play’. Our programmes
offer children and youths an experiential
and relevant way of learning. It’s like
demonstrating to them 101 Ways to Fulfil
Your Dreams by Understanding Money
instead of teaching them Accounting 101.
The People
People often ask us why our financial
literacy programmes are mainly designed
for young kids and youths. But I think
the real question here is why are we not
teaching our children about money? I
would think that it is as important as the
ABCs and 123s.
How many of us parents have been
guilty of telling our children, “You must
go to school if you want to make a lot of
money”? I know I have on occasion, if not
intentionally. We seem to take for granted
that the only reason to go to school is
to make more money. And this is what
we have imbedded in the minds of our
children. But the irony is that – in actual
fact, they do not really learn about money
in school. They learn English, mathematics,
history and science; but not about the
subject of money.
Students and young
consumers who are
educated about financial
matters and equipped
with financial skills at a
young age are more likely
to display positive financial
behaviours
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Compounding this, in schools,
children are given rather mixed messages
about money. They learnt how to calculate
money in math class – simple math that
helped them get the right change back
at the canteen. Then in English class, they
learnt that “money can’t buy happiness”
and that “money is the root of all evil”. It is
no wonder then that we are very confused
about money as a society because we do
not fundamentally understand money or
teach an understanding of money.
The Method
While I think it is important to make
financial education part of the school’s
curriculum, it is even more important –
before we do so – to make sure we do
it right. Towards this end, MoneyTree
conduc ts several programmes for
different age groups. Our programmes
are endorsed by the Singaporean and
Malaysian Ministries of Education and this
demonstrates that governments are taking
the lack of financial literacy seriously.
Making Financial Literacy Education a Priority
The beginner’s course is the Financial
Literacy Progamme (FLiP). It provides
children and youths with a clear and
practical approach on understanding
money by putting them in a mini economy.
In this programme, children are given cash,
credit cards and investment certificates.
They learn how to earn, spend and invest
in a fun and memorable way. They are
given jobs and are expected to take full
ownership of their job scopes and – just like
in the real world – they can get promoted,
demoted and even fired; depending on
their performance. Classroom activities
thus become a ‘dress rehearsal for real life’
experience.
The other programme, First Steps, is
designed for secondary school students
to teach them about e-commerce. These
days, most brick-and-mortar outlets have
moved into online stores. Conducting
business online and through social media is
a big departure from the traditional way of
doing business. So, we teach students how
to set up online stores, do online marketing
and so forth.
Currently, one of our most interesting
and successful projects is the CashVille
Kidz television programme, which is
being aired on the Astro TVIQ channel
in Malaysia. CashVille Kidz is supported
by Maybank (one of the leading financial
institutions in the country) and the British
Council and endorsed by the Ministry of
Education. We hope that the success of
our initial programmes will encourage
greater participation from government and
corporates, which will help gain the muchneeded momentum to reach a tipping
point where financial literacy becomes a
goal in our education system.
CashVille Kidz is a clear example of
how we integrate the ‘pull’ factor when we
design education programmes. We want
to reach children between the ages of
10-12 through the programme. To do that
effectively, we designed a programme that
speaks to them on their level, gave them a
community of peers with whom they can
relate and rewarded them for their interest.
We Bieber-fied financial literacy, if you will,
and I am glad to say that we have had some
success. In a short span of time, we have 1.5
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million viewers and a community of over
90,000 on Facebook.
In Conclusion
It is important that we help people
understand that money is neither good
nor evil – it is merely tool. Just like a
weapon, the outcome of how we use
money depends on us. Again, if we do not
control money, it controls us. So, the most
crucial step is to first understand it and
what better way than to start with children
at a very early age.
Brandon Liew ardently believes
that learning trajectories could
be leapfrogged by the integration
of real-world experiences. As a
co-founder and CEO of Moneytree
Malaysia, Liew drives the growth
o f M o n e y T r e e ’s i n n o v a t i v e
programmes and oversees the
company’s business development;
passionately advocating financial
literacy and entrepreneurship for
the young.
Raising the Standard
for talent Development
Zooming in on talent and trends surrounding Islamic banking
H
aving a footprint in Malaysia since
1983, Islamic banking has grown
from strength to strength but not
without its challenges – one of which is
plaguing not only this portion of banking,
but the economy as a whole. Even in other
industries, the question of attracting and
retaining talent remains a poignant one.
CEO of the Asian Institute of Finance (AIF)
Dr Raymond Madden touched on this
topic during his keynote address at the
recent 4th Annual Asia Islamic Banking
Conference in Kuala Lumpur.
According to Dr Madden, Islamic
finance faces three distinctive talent
dilemmas, namely talent shortage, talent
pinching and premium wage. Islamic
finance is experiencing unprecedented
growth due to mounting demand for
shariah-compliant financial products and
services on a global scale. According to
Dr Madden, as the industry is steadily
making inroads into mainstream finance,
Islamic finance would require an estimated
one million professionals to fill in various
positions in Islamic financial institutions
worldwide by 2020. He added that the
current shortage of qualified Islamic
finance professionals is a challenge that
poses a serious threat to the growth and
development of the industry and if this
issue is not addressed immediately, talent
shortage may impede the dynamic growth
of the industry.
The current shortage of trained
and qualified manpower in the Islamic
finance sector has also created a culture
of pinching talent among financial
institutions. This has led to wage distortion,
From left: Ahmed Ali Siddiqui (Executive Vice President & Head Product Development & Shariah Compliance, Meezan Bank Limited), Khairul Emran
Mahmud (Vice President, Al Rajhi Bank Malaysia), Dato‘ Mohd Effendi Abdullah (Director & Head of Islamic Markets, AmInvestment Bank Berhad), Dr
Raymond Madden (CEO, Asian Institute of Finance), Shah Fahad Yousufzai (Vice President & Head of Strategic Marketing & Product Development,
Islamic Bank of Thailand)
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Events
Dato’ Mohd Effendi during a session at the conference
Dr Madden speaking at the conference
which can be harmful to the sector in the
long-term if the resultant higher wages
are not compensated with improvement
in productivity and efficiency. “As a shortterm solution to address the shortage
of manpower, many Islamic banks have
resorted to attracting talent from their
competitors by offering wage packages
more lucrative than the last,” said Dr
Madden. If this practice continues, he
added, wage inflation will be inevitable.
Stressing that talent is the driving
force behind economic growth, Dr
Madden shared in his address that as
Generation Y makes up about 40% of the
Tuan Ramlan Tuan Sulaiman of CIMB Islamic asking a question during the conference
workforce in Malaysia, understanding what
motivates and inspires Gen-Y employees
is important to attract and retain them.
“Gen-Y employees are focused on career
development. They value education and
are excited by the desire to take on new
challenges to expand their capabilities.
According to the recent Randstad
Workmonitor survey, more than 60% of
Malaysian Gen-Y employees said they
would quit their jobs should there be no
more room for personal development.
This highlights the priority that Gen-Y
employees place on career progression –
even higher than salary,” he said.
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The 4th Annual Asia Islamic Banking
Conference, which was held from 10-11
June at The Royale Chulan Kuala Lumpur,
brought together industry experts to
discuss all aspects of Islamic banking in Asia
Pacific as well as the neighbouring region.
Covering an array of topics that range from
strategic marketing, corporate and retail
banking to human capital, the conference
featured a tailored programme designed
by industry experts. The conference also
saw a line-up of C-level speakers from local
leading Islamic financial institutions and
innovative solution providers as well as
speakers from elsewhere within the region
including Pakistan, Qatar and Kuwait.
Taking the road
less travelled
Developing the needed talent to drive economic growth
I
n a period of profound economic
uncertainties marked with widespread
insecurity both amongst employers
and employees and among the different
generational cohorts in the workforce,
talent development has taken a new
urgency. Talent economy has been
identified as one of the key variables to
economic growth. This is simply because
growth can’t be achieved if employers
don’t have the right talent to support
it. CEO of the Asian Institute of Finance
(AIF) Dr Raymond Madden touched on
the vital aspect that is human capital in
building any economy during his keynote
address at the recent MFA Conference in
Kuala Lumpur.
The conference, which was jointly
organised by the Malaysian Finance
Association (MFA) and the International
Centre for Education in Islamic Finance
(INCEIF), was held from 2-4 June with
the theme “Financial Challenges and
Economic Growth – The Way Forward”.
The conference brought together
representatives from central banks;
industrialists; academicians; postgraduate students; and professionals
from finance and banking institutions,
research institutions, government bodies
and professional associations. This year’s
conference also piqued the interest
of participants from countries such
as Australia, New Zealand, Indonesia,
Pakistan and Saudi Arabia.
In addressing the audience, Dr
Madden said: “The demand for talent
will continue to increase due to new and
existing players in the financial sector
that will expand business operations
within and outside the country.” He also
added that in line with the Bank Negara
From left : Professor Dr Obiyathulla (President, MFA), Dr Madden (CEO, AIF) and Daud Vicary (President, INCEIF)
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Events
Too many graduates
and employees
either have skills
that don’t match
Dr Raymond Madden with recipients of the Best Paper Award in Applied Finance
the requirements of
employers or don’t
have the right skill sets
to support business
needs
Participants of the MFA Conference
Malaysia’s Financial Sector Blueprint
(FSBP), which targets additional 56,000
skilled workers by 2020, these concerns
need to be addressed immediately.
“Ever y year, Malaysia produces
more than 30,000 banking and finance
graduates from public and private
universities. But only a fraction of them
are truly qualified. In this regard, the
industry faces problems in obtaining
skilled workers and it’s something that
needs to be resolved,” he added. This
poses a great challenge for a country like
Malaysia that aspires to achieve a highincome status by 2020. Although the
country doesn’t face a shortage of talent,
Dr Madden pointed out that too many
graduates and employees either have
skills that don’t match the requirements
of employers or don’t have the right skill
sets to support business needs. Thus, not
surprisingly, attracting the right people
with the right skills to the business has
become the biggest concern of many
organisations.
He added that the FSBP, which places
due focus on balanced growth and access
to quality financial services, requires
developing a competent talent pool to
drive the financial services industry’s
growth. With the growth of the financial
sector projected to increase to between
10% and 12% from the current 8.6%,
growing talented workforce to support
the industry’s expansion represents a
challenge that requires new strategic
approach in developing a deep and wide
spectrum of talents.
T h e s u c c e s s o f a n y t a l e n t
development strategy, according to Dr
Madden, lies in four main building blocks
– workforce upskilling; collaboration
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a n d c o o rd i n a t i o n a m o n g v a r i o u s
agencies and stakeholders; coordination
between industry and institutions of
higher learning; and development of
professional standards for the industry.
The programme for the last day of
the conference also included a dinner,
during which an award ceremony was
held to recognise top research papers
out of the 180 that were submitted
for evaluation. From the total, 125
were accepted for presentation at the
conference and 10 for the postgraduate
colloquium that was held on the first day.
Dr Madden represented AIF in giving out
the five Best Paper Awards in Applied
Finance sponsored by AIF. These awards
are part of the ongoing initiatives by AIF
to encourage more applied research in
the areas of finance, which are likely to
foster innovation in the industry.
Emerging risks and
business challenges
Industry experts discuss key issues and challenges
surrounding risk management in the financial services industry
A
sian Institute of Finance (AIF)
recently organised a roundtable discussion on anticipated
challenges in the upcoming 12 months
as well as the current economic and
financial climate. The event brought
together practitioners and financial
community leaders including risk experts
from financial institutions and regulatory
bodies, reflecting upon new challenges
for risk management in the financial
sector and some of the broader risk
management issues facing financial
institutions. The round-table discussion
was facilitated by Nigel Denby, Chief Risk
Officer of AmBank; David Thomas, Group
Chief Risk Officer of CIMB; and Dr David
Bobker, Head of Risk Management at AIF.
There was a good deal of discussion
around high-level challenges in the face
of economic uncertainty, which continues
to hamper growth prospects. Some of the
challenges highlighted were the large
gap caused by slow economic growth in
the West and the property bubble that
is rising significantly in Asia. Participants
Dr David Bobker leading a discussion for Group 1
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also brought to the table the topic on
how the property boom in China would
affect the region. Many agreed that the
risk of a property boom in China is still
very much in the cards. Some cities in
China are seeing a tenfold increase in
prices. In Shanghai, for example, the cost
of a home is estimated around 45 times
of the average resident’s annual salary.
A bubble burst in China will have a
significant brunt on local governments as a
result of their heavy reliance on real estate
revenues as well as on domestic demand
Events
David Thomas (Group Chief Risk Officer of CIMB) presenting conclusions
from his group discussion
Participants of the AIF Risk Round Table Forum
Group shot of the participants
for a range of external commodities
– Japanese construction equipment,
Australian iron ore and Chilean copper.
Hence, the outlook for China’s real estate
sector has serious implications for the
country’s growth as property investment
accounts for over 14% of China’s GDP.
On the local front, Malaysian property
is said to be underpriced compared
to its neighbouring countries in the
region – putting Malaysia on the radar
of foreign institutional investors. This
has attracted the influx of hot money in
search of higher returns and may have dire
repercussions on other markets should
the local economy face a downturn.
The round-table discussion also
touched on means by which banks
can diversify from risks, which includes
looking at what is presently offered in
the local and international markets and
finding risk-mitigating strategies that
can package risks to be passed on to
companies with bigger balance sheets. A
key recommendation was for companies
to examine and quantify their own risks
as well as maintain a spread of credible
finance or insurance companies.
A discussion surrounding regulatory
changes, accounting standards and how
businesses and banks could adjust in
terms of strategy also took centre stage.
This led to a dialogue on whether the
management of these organisations
possess the aptitude, referral points
and DNA to change. Participants also
deliberated on cyber risk and whether
organisations have the appetite to spend
on mitigating this risk in a climate where
markets are competitive. Potential cyber
risks to organisations include intellectual
property theft and malware as well as
electronic warfare – denial-of-service
attacks and privacy breaches.
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In conclusion, participants
deliberated on whether the development
of regulations makes it difficult
for businesses to expand. While our
regulations are in line with those of
Hong Kong and Singapore, the more
pressing issue is the constant change
that the industry faces. Having to keep
up with aggressive timelines makes
it difficult for those in the industry to
perform their day jobs. Apart from that,
participants also agreed that the real
enemy is within as many organisations
are faced with risk blindness. Whether
due to time, monetar y or resource
constraints; many organisations are not
paying enough attention to risk. However,
it is an important consideration to factor
into any strategy as it helps organisations
anticipate and prepare for undesirable
consequences.
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