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Improving Financial Inclusion through New Channels and Innovative Products A Case Study of Malaysia
Kameel Abdul HalimDeputy Chief Executive of Bank Simpanan Nasional
Seminar on SFIs in the New EditionTuesday 23 August 2016Hosted by Bank of Thailand
Malaysia: At a glance
DFIs in
MalaysiaBSN championing
financial inclusion
agenda
1 2 3
Agenda
Channels
4
Products
5
2
3
Malaysia at a glanceQuick Facts
Household income (B40*)
LabourForce Unemployed
Income per capita
2.7m
Urban Rural
*B40 is bottom 40% that household income less than RM3,855 (based on household survey 2014)Source: Department of Statistic Malaysia
14.7m
$10,570501.8k
@3.4%
63% : 37%
Malaysia at a glanceQuick Facts
Financial Access Points4
1 Department of Statistics Malaysia2 Indexmundi.com
3,4,5 BNM Financial Stability and Payment Systems Report 2015
5 Where 1.00 reflects full inclusion
30.7 mil
Statistics 1
50.7 62 71
1991 2000 2010
Urbanization
Population
27.3Median Age
Kelantan: 42%
Pahang: 50.5%
Perlis: 51.4%
Sarawak:53.3%Sabah:54%
Terengganu: 59.1%
States with urbanization level below 60%
4.5
Access points per 10,000 adults
5.1 ATM
2.3 CDM
2015: 19.8m / 7.3m2011: 11.9m / 1.6m
Internet & Mobile Bnkg Penetration
Rural population (% of total population): 25.30 as of 20152
Transaction
Volume (Mil)
Internet
Banking
Mobile
BankingATM Total
Fund transfer 237.7 17.1 53.1 307.9
Bill payment 74 5.1 1.9 81
Investment in
share & unit trust6.6 0 0.1 6.7
Re-load 24.9 6.9 3 34.8
Card & loan
repayment26 2.2 8.4 36.6
Total 369.2 31.3 66.5 467
Payment3
Financial Inclusion Index score 5 for the general
population in Malaysia
0.90 in 2015
4
Development Financial Institutions (DFI) in Malaysia under the purview of BNM
Specialized financial institutions (sectorial & universal based)
established by the Government with specific roles to play
Bank Simpanan Nasional SME Bank Malaysia Bank Kerjasama Rakyat
Export-Import Bank of Malaysia Agro Bank Malaysia Bank Pembangunan Malaysia
To develop and promote growth of targeted strategic
sectors of the economy
To achieve socio-economic objective
To complement the role of banking institutions
5
DFIs comes under the purview of the central bank through the Development Financial Institution (DFI) Act 2002
Promoting Financial Inclusion
Enhancing intermediation capability
Financial system that provides basic financial services that are affordable, appropriate, convenient and accessible to all
Financial system that effectively and efficiently allocate resources to facilitate the transformation of Malaysia towards a high income economy
Financial Sector Blueprint
Goals of the New Economic Model
Institutional Arrangements
Advisory
• Banking system
• DFIs• Venture capital companies
• Leasing & factoring companies
• Cooperatives
• Government agencies
• Money Lenders
• Pawn Shops
Financing
Credit Guarantees
• SME Corp and SME Bank
• Government. agencies
• Credit Guarantee Corporation
Rescheduling & Restructuring
• Small Debt Resolution Scheme
6
How do DFIs fit in?
7
DFI, 8%
Islamic Banks, 20%
Commercial &
Investment Banks, 72%
Financial Landscape Total Assets (as at December 2014)
Malaysia DFIs have made significant stride since 2002
45.20%
23.20%
14.80%
6.10%
5.50%
5.10%
BR
BSN
BPMB
Agro Bank
EXIM
SME
Total assets in 2014 constitute8% (RM197 bil/USD49 bil) ofbanking sector assets (3%:2002)
Tap the capital markets through Ringgit and Foreign currency bond and sukuk issuances
Regulated by a regulatory framework that emphasises on strengthening capacity and capability• Capital position & asset quality• Enhanced governance standard &
practices
The DFI Act 2002 carries BNM’s policy intent
• As the regulatory framework for DFIs and continue to reflect their unique characteristics.
• Ensure DFIs continue to be safe and sound.
• Lines of accountability and co-ordination with clarity on the roles of Minister, stakeholder Ministries and BNM in regulating DFIs;
• Boundaries to avoid regulatory arbitrage in the areas of market conduct, Shariah and the enforcement framework in the financial services industry; and
• Operations of the law for greater efficiency and effectiveness.
Principle
Outcome
8
In collaboration with stakeholders, BNM will continue to balance multi objectives in regulating and supervising DFIs
Proportionate approach
Ensure sustainable financial performance
Promote stronger risk management practices
Recognize developmental role mandated by Government
Regulatory approach based on suitability, discretion and
readiness
Supervisory approach at par with other institutions
Sound financial performance
Improved governance, greater professionalism and human capital capabilities
Recognize unique role in the financial system
Continue to deliver developmental mandates by serving the targeted sectors
Proportionate in application of capital standards and access to market (agent banking)
Balanced outcome
9
Guidelines Policy objective
Agent BankingTo facilitate the implementation of agent banking in underserved areas, in a reliable, safe andsustainable manner whilst safeguarding the interest of customers.
Microfinance framework (by National SME Development Council)
To encourage financial institutions to provide Microfinance, design right products to meet theneeds of Microenterprises and create wide spread awareness on availability and benefits ofMicrofinance.
Capital Adequacy Framework (also known as the Risk Weighted Capital Adequacy Framework)
To maintain adequate and strong financial capacity to undertake business activities in supportingmandated roles. Also to further strengthen and preserve the capital position of the DFIs.
Risk GovernanceFocuses on applying the principles of sound corporate governance to the assessment andmanagement of risks to ensure that risk-taking activities are aligned with an institution’s capacityto absorb losses and its long-term viability.
Introduction of New ProductsImprove the time-to-market for financial institutions to introduce new products or to effectchanges to existing products, promote sound risk management and strengthen financial capability.
Best Practices for the Management of Credit Risk for DFIs
To lay the initial foundation towards upgrading the prudent conduct of credit granting activities ofDFIs in Malaysia.
Selected Bank Negara Malaysia (BNM) Guidelines & Framework for DFIs
10
Established by the Government of Malaysiawith the following objectives:
To promote and mobilise savings,for the general public particularlyfrom small savers;
To inculcate the habit of thrift andsavings; and
Financing the economic development of the nation.
Establishment of BSN
11
12
BSN by the numbers
766
ATMs
7,237
Employees
403
branch
7,017
Agent Bank
RM31bil
(USD 7.8b)
Total assets
> 9mil
Customer base
46
MFCs
93
VTMs
10
Mobile Units
As of June 2016
51%
Market leader in MF
Government & Central Bank driving national financial inclusion agenda
2005
2006
2009
2011
2012
2014Basic banking services;No frills low cost savings account
Micro-financing framework
Central Bank of Malaysia Act 2009
*Financial Sector Blueprint 2011-2020
Agent Banking
Account ownership for adults from the poorest 40% of householdsin Malaysia increased from 50% to 76%
Malaysia's financial inclusion grew from 66% in 2011 to 81% in2014.
Financial Sector Masterplan 2001 - 2010
*An integrated approach:• Financial inclusion for greater shared prosperity• Effective and efficient intermediation 13
Agent
BankingRemote
Branches
Channels & Products
Microfinance
BSN is embarking into new channels and technology to further improve financial inclusion and to tap various customer segments…
Mandated Roles 14
1 2 3 4
15
Song , Sarawak
• Accessible only via express boat from Sibu• District population as of 2010: 20,046• Began operations: 23 Apr 2009 with 1 Branch
officer & 3 Tellers• As of July 2016: Total deposit stood at RM9.8 mil
(USD2.45mil)
Remote AreasMaking lives better
PlaceBranch opened
year
Population (Census year)
Deposit Size (RM mil/USD
mil)as of July 2016
Distance from KL
Pulau Tioman 2009432
(2008)8.220/2.06 350.3 km
Kota Sarang Semut, Kedah
2010 N/A 9.840/2.25 420.7 km
Beluran, Sabah 2011104,484
(20103.507/0.88 3,981.5 km
Kinabatangan, Sabah 2011146,987 (2010)
5.104/1.28 4,039.3 km
CPI Jeli, Kelantan 201242,882 (2009)
6.068/1.52 360.7 km
Tambunan, Sabah 201635,667 (2010)
0.807/0.20 3,810.8 km
USD Conversion Rate: 1 USD equals RM4
1. Belaga is a small district in Sarawak of EastMalaysia with population as of 2010: 37,102.
2. The nearest town where banks are available isabout 100 km away i.e Town Bintulu, 6 hoursaway via gravel road or 5 hours by river.
3. Dependent on their heads of community orfriends to do banking on their behalf.
4. BSN opened the branch in 2011. As of July 2016,total deposit stood at RM 6.7mil (USD 1.68mil).
The story of Belaga
16
Agent Banking (Banking Beyond Branches)Overview
Aug 2012July 2012Jan 2012
BSN: Pioneer of Agent Bankingmodel in Malaysia• Self-initiated• Started with 200 agents• In support of Malaysian government’s call to
elevate the standard of living of those in ruralcommunities
Agent Banking Framework• Ensure sound & prudent risk
management to minimize riskprofile of FIs as a result ofdependence on 3rd parties
• Safeguard interest of customers• Areas of governance and oversight,
management of agents, customerprotection, awareness andeducation
Pilot run by 3 banks• 2,322 agents• More than RM1mil (USD250k) transactions
worth more than RM190 million (USD48 mil) has been conducted
2015 Enhanced Agent
Banking Regulatory
Framework*
*Effective for 5 years from 30 Apr 201517
Agent Banking (Banking Beyond Branches)As a conduit to greater financial inclusivity
• Financial services through agents or third party intermediaries.
• Prior to the introduction of the Agent Banking service, only 40% of thetotal 837 mukim (sub districts) in Malaysia had been served 1. As of Dec2015: 96% enjoying the convenience of banking services.
• Currently there are four banks in Malaysia offering Agent Banking : BSN,Maybank, AgroBank and RHB.
79%
13%
6%2%
Retail agents Structured agents
Post offices Co-operatives
4,120
6,902
End 2012 End 2015
Number of Agent Banks & Transaction in Malaysia
3 mil (USD 750k)
63 mil(USD 16mil)
Ma
inly
su
pp
ort
ed b
y R
eta
il A
gen
ts in
Ma
lays
ia
Achievements
Cheaper Cost
Scalability
Reach
• Under-served communities 1
• Non-urban areas 2
• Non-economical areas 3
• Under-served areas 4
1 Less than 5 financial touch points2 10 km radius away from town area3 Low business activity areas4 Less than 2,000 people with no financial access
90% Agents by BSN
1 Asian Link: Going Beyond the Conventional (2013)18
Summary of Agent Banking Guideline 2015
Agent Banking Services
• Conducted in identified districts only
• Real-time basis & within business premise
• Daily cash withdrawal • Prohibited services
Agent selection, conduct & monitoring: FIs develop governance and internal control & to establish contract with agents for effective oversight1
Monthly reporting to BNM on transaction statistics, agent details & police reports2
Implement operational requirements (e.g. IT infrastructure) & measures to safeguard customer protections (e.g. display of national Agent Bank logo)
3
National logo
FI logo
http://www.bnm.gov.my/guidelines/08_agent_banking/01_agent_banking_20150430.pdf
Facilitate a reliable, safe and sustainable Agent Banking
19
Agent Banking
Supports the Government ‘s
National Agenda
Expansion & development
of local communities
Reduces BSN’s carbon
footprint
Perpetual demand for
banking services
sustains bank growth
Agent Banking & Sustainable Development
• National Blue Ocean Strategy (Cost effectiveness, rapid expansion, high impact)
• Financial Inclusion
• Agents of growth in their own communities
• Knowledge of IT and banking
• Reduces setup of brick-and-mortar branches
• Longer working hours: 8am – 10pm
• Promote other banking products to customers i.e. SSP
Reach out to the underserved segments of the population (particularly in rural areas) in a more cost efficient manner through the use of non-bank retail outlets. Also act as an alternative banking channel without the need to set up any brick-and-mortar branches in urban areas. 20
Agent BankingMechanics
Deposits
Fund withdrawal
Fund transfer
Opening of savingsaccount
Receiving loan/financing repayments
Facilitate bill payments
Formless (MyKad-based)
Automated
Wireless GPRS
Simplified process
Increased coverage
Transaction Switch / Middleware and BSN
Host / System
GPRS Network
P.O.S Terminal
Customer and Agent
21
8,265,052
13,036,438
18,398,914
2013 2014 2015
Agent BankingExperienceCosts Branch
ATM-Off Premise
Agent Banking
Set-up Cost(One-off)
MYR500,000(USD125,000)
MYR45,000(USD11,250)
MYR5,000*(USD1,250)
Yearly Operating Cost
MYR250,000(USD62,500)
MYR40,000(USD10,000)
MYR2,000(USD500)
Cost Overview
49%
EB growth in transaction
CAGR*Includes POS Terminal & Point of Sales Material such as flyers
• 450 transaction per agent per month
Breakeven point
Monthly operating cost: • Fixed cost (GRPS Access Fee)• Variable cost (Commission paid to agents, thermal
paper, marketing expenses)
22
Agent BankingExperience
No of Agents by BSN
BSN will have 5,000 agents by 2015”– Prime Minister (October 2012)
“ ”Served: 5,533Underserved: 1,469Unserved: 15
Peninsular Malaysia : 5,795 (83%)East Malaysia : 1,222 (17%)
Sub-urban /Rural: 5,283Urban: 1,734
RM 81.3 mil
RM 5.7 bil
Transactions
Value
Bill payment65%
Prepaid top-up24%
Cash deposit5%
Cash withdrawal5% Others
1%
Grocery shops51%
Telcos17%
Others32%
23
*
* As of June 2016
ChallengesExperience
Quality of Agents: Recruitment Guideline
Communication: SOPs, instructions & promotions
Ground Support: Coordinators, State EB,
Operations Support
Close Monitoring: Business & Operations
Performance
24
Quality of Agents: Recruitment Guideline
No. Item Descriptions
1 Types of business a. Personal (individual / Sole Proprietorship) b. Partnershipc. Private Limited Company (Sdn Bhd)d. Public Limited Company (Berhad)
2 Business Period a. Operating more than 12 months
3 Location a. Number of population approximately 2,000 (not applicable for unserved)b. The distance not less than 5km radius from BSN branchesc. Premise in good conditiond. The distance between the other agents not less than 10km radiuse. GPRS coverage (minimum requirement)
4 Operating Hours a. Daily basis (8.00am – 10.00pm)
5 Others (dataverification with third parties)
a. Business Search / Credit Reference (BRIS)b. Police reportc. Blacklisted CCRIS
25
● Agent recruitment and termination (administration)
● Monitoring of agents performance
● Monitoring and analysis the suspicious transactions
● Agent selection and interview
● Agent appointment / termination
● Agent supports (marketing, operations and business)
● Agent Helpdesk
● Monitoring of errant agents (manipulation / split transaction)
● Account reconciliation (finance)
HQ Coordinators State EB Staff Operations Support
26
Ground Support: Coordinators, State Agent
Bank, Operations Support
Daily monitoring via system
(web module)
Identify suspicious transactions i.emanipulation /
split
Details investigation
Follow up action taken
• Auto generated daily report on suspicious transactions by agents
• Verify the suspicious transactions by referring agent’s transactions detail
• Visit the suspected errant agents
• 1st attempt: Verbal reminder and warning
• 2nd attempt: Issuance of 1st warning letter
• 3rd attempt: Suspension of agent commission and/or termination
27
Close Monitoring: Business & Operations
Performance
EB Award Night
Outreach programme
EB Campaigns
28
Communication: SOPs, instructions &
promotions
Agent BankingMoving forward
Moving Forward
New products/services
Negotiate New Rate to Billers
Reduce Operating
Costs
Charging Customer
Process Improve-
ment
Technology Enhancem-
ent
• Remittance• Micro Insurance
• Utilities company i.e to increase fee income to RM1.00
• Restructuring agent commission structure
• Online real time payment i.e TM & Astro
• Barcode scanner for bill payment
• Bill payment transactions via cash
• Multi-devices• Enable to
support 3G
29
Synergy between agent banking and microfinancing
30
MicrofinanceOverview
20%
3%
Micro
Services (80%)Manufacturing (57%) Agriculture (56%)
77%
MSMEs1
1SMEcorp.2 World Bank affiliate, Consultative Group to Assist the Poor (CGAP).3&4 BNM Financial Stability and Payment Systems Report 2015.
• Development financial institutions
(DFIs) to provide sustainable
microfinance.
Bank Simpanan Nasional
(National Savings Bank) has
been mandated to provide
microfinance.
• Banking institutions to play a key
role in microfinance.
• Financial institutions complement
the existing Government
sponsored programs (e.g. Amanah
Ikhtiar Malaysia, Tekun).
Microfinance Institutional Framework
“Financial services for poor and low-income clients offered bydifferent types of service providers”2.
Currently offered by 10 banks.
Financing approved: RM3.1 bil (USD775 mil) for more than 185,000accounts (Since inception in 2006until end-2015) 4.
Micro Enterprise Fund(MEF): RM200 million(USD50 mil) revolvingfund by BNM3.
Several Ministries &Agencies i.e. Agro providesmicrocredit schemes.
31
Capturing the underserved market & segmentsMainly from lower income businesses 1,
but viable.
Faced difficulties 2 in obtaining financing/loans due to:
• Lack of income evidence• No collateral• Insufficient documentation
Impact of not assisting them:• Impedes growth of ME• Socio-economic problems
perpetuating poverty cycle, turning to loan sharks for help.
1Sales turnover less than M300,000 OR full time employees less than 5.2 Only 17.4 % of micro establishments relied on financial institutions for financing. 32
33
Market Share
Total Industry: RM930 mil (USD 233mil) 1
(As at 31 May 2016)
BSNRM472 mil
(USD 118 mil)
10 Banks, RM458 mil
(USD 115 mil)
Since 2007, BSN has approved a total of RM1.2 bil (USD 0.3bil) to more than 50,000 customers
• 46 Dedicated MF Centers;• 110 MF Business Relationship Officers
to specifically market and process loans.
BSN championing Microfinance in Malaysia
1 BNM
MicrofinanceExperience2007-2010
BSN launched MF Program on March 15, 2007
Target at all viable
Malaysian owned MEs
2011
Target business operated by New Chinese
Village Residents
Funded by Government
2012-2016
Target Night Market traders & viable MEs
Microplus product up to
RM250k
Developments
Besides provision of credit facilities, BSN also extends:
Access and opportunity to save MF customers are required to maintain savings accounts
with the bank, with regular monthly deposits Insurance/Takaful Coverage
34
01 02 03 04 05 06
Ch
arac
ter
len
din
g
No
pro
per
bu
sin
ess
pro
spec
tIr
regu
lar
Co
llect
ion
s /
Rep
aym
ent
Bu
sin
ess
Via
bili
ty
Poo
r fi
nan
cial
m
anag
emen
t
Illeg
al O
per
ato
r /
No
Op
erat
ing
Lice
nse
ChallengesExperience
Issues & Challenges byMicrofinance Institution
Issues & ChallengesMicro Entrepreneur
• Lack of marketing skills
• Inferior & Outdated
Technology
• Lack of Access To
Financing
• Inadequate Managerial &
Operational Expertise
35
MicrofinanceAspiration
Agent Banking
(EBB)
Micro Finance
(MF)
SynergyProviding MF to the appointed EBB for
business expansion
Existing MF customers to become EBB
MF Financial Inclusion in Context of Current Strategic Direction
36
37
Masnah JinulMonthly sales: ↑ 376% Employed: 2 workers
Goo Boon Tat
Pre Post
Microfinance success stories
Monthly sales: ↑ 198% Employed: 3 workers
Mandated products as part ofFinancial Inclusion
38
Micro Savings
Long-term contractual savings for the period of 5 years
Offers fixed interest rate +‘Anniversary Bonus’
Registered under eKasih aged 18 years old & above with
monthly household income of ≤RM2,300 (USD575)
1 As percentage from no of participants in road shows
Collaboration with Gov. Agencies (NGOs) and Ministries to introduce contractual savings product
• Part of Financial InclusionFramework by BNM
• Bundled with lifemicro-insurance
• Offered by two banks:BSN & Maybank
BSNs achievement: 55% 1 take-up rate as of Dec 2015
39
DepositsSchool DepositObjective:
• Mandated Role: BSN Corporate Social
Responsibility to help School collect donation
via carnival sales.
• Getting to know the social through educationmedium that is 1Malaysia oriented.
Schools (Apr-Nov 2015)
54 BSN Involvements
At least
4 Schools in each state
BSN Deposit Product RateCommercial
bank*
BSN GIRO (Individuals)
0.25% - 0.85% -
BSN Basic Savings 0.25% - 0.95% 0.25% - 0.55%
Premium Savings Certificate
0.25% - 0.85% -
School Deposit 0.35% - 1.70% -
Deposit Pricing
• Savings scheme in the format of a competitionencouraging national primary/secondaryschool student to save and participate.
40*CIMB Bank
Other Mandated Deliverables
Designed to improve opportunities & help change the lives of Malaysians
RM300m/USD75m
RM100m/USD25m
RM200m/USD50m
Loans for school buses & taxi drivers hire purchase
Creativeindustries
Equity schemes
Chinese New villages
Housing for married youths
Micro Finance
BNM Fund (Teman Mesra) 1.5%
RM50m/USD13m
RM300mUSD75m
Government/Regulator assistance
Bank internal fund 41
First in Malaysia
Enabled with videoand audio, withsignature pads andcard identificationfor securetransactions31 branches are equipped with
VTMs sharing, the expertise of 448 tellers.
Embrace technology to increase quality of services
Balances workload between high and low traffic branches
Virtual Teller Machine
42
Riskier, costly
Mandated products
Balancing between sustainability and mandate
Profit for bank
Retail products
Support Government Initiatives
Generate return for stakeholders
Attract customers
43
Continuous support from Government & Regulator is essential in driving Financial Inclusion agenda
Government funds/grants i.e. New Chinese Village Residents Microfinancing
Basel 1
Lower charge to capital i.e. Youth Housing Scheme
01 01
02
Leeway by regulatorSource of funding
44
Concluding Remark: First-mover Advantage
Competitive Advantage
in Agent Banking &
Microfinance
01 Economies of scale
02 Cost-efficient
03 Learning curve
04 Market share
Single/less players in the field a few years back…
Realizing the benefits, Commercial banks start entering the field…
45
46
Concluding Remark: Using Technology for Financial Inclusion
Huge initial
CAPEXinvestment
Cheaper in the long run
Creates Customer
Segmentation
141%Mobile penetration (total mobile users to population) 1
63%Access Internet via phone2
Secular (Customer Neutral)
Technology has always been at the core of Financial Inclusion – it has been ‘the’ driving force
• Mobile wallet• Vodafone M-Pesa
1 TheStar news paper Online, Dec 20152 Malaysian Communications and Multimedia Commission Survey (2014)
Concluding points
Favourable and flexible policies
Continuous efforts by the Central Bank
Support national agenda Product innovations Staying abreast with
market
Financial InstitutionsRegulatorEnsure economic sustainability & increase overall stability of financial system
47
