Malaysia Is a Country with Thirteen States and Three Federal Territories in Southeast Asia Kuala Lumpur is capital of Malaysia, and Putrajaya is the seat of the federal government, And Has A Total Landmass of 329,847 Square Kilometers (127,350 Sq Mi) Separated By The South China Sea Into Two Equally Sized Regions, Peninsular Malaysia and Malaysian Borneo.
The country is multi-ethnic and multi-cultural, which plays a large role in politics. Being the subject to the British Empire, Malaysian government system is very much like the parliamentary system of Westminster while its legal system is using English Common Law as its basis. With a population of more or less 28,334,135, Malaysia is the world's 43rd most populous country and the country is one of Asia's most developed countries by infrastructure.
The government system is closely modeled on the Westminster parliamentary system and the legal system is based on English Common Law. The constitution declares Islam the state religion while protecting freedom of religion.
Malaysia contains the southernmost point of continental Eurasia, Tanjung Piai. Located in the tropics, it is a mega diverse country, with large numbers of endemic flora and fauna.
Financial System Structure in Malaysia
The Malaysian financial system is structured into two major categories, Financial Institutions and Financial Market. The Financial Institutions comprise Banking System and Non-bank Financial Intermediaries. The Financial Market in Malaysia comprises four major markets namely: Money & Foreign Exchange Market, Capital Market, Derivatives Market, and Offshore Market.
Banking System
The banking system consists of Bank Negara Malaysia (Central Bank of Malaysia), banking institutions (commercial banks, finance companies, merchant banks and Islamic banks) and a miscellaneous group (discount houses and representative offices of foreign banks). The banking system is the largest component of the financial system, accounting for about 67% of the total assets of the financial system.
The summary background information and functions of the institutions mentioned above are set out as follows:-
Bank Negara Malaysia (BNM)
Commercial Banks
Finance Companies
Merchant Banks (also known as Investment Banks)
Islamic Banking
Discount Houses
Representative Offices of Foreign Banks in Malaysia
Non-Bank Financial Intermediaries
Non Bank Financial Intermediaries mainly comprise of Insurance Companies, Provident and Pension Funds and Development Finance Institutions. Summary background information and functions of these institutions are appended below: -
Provident and Pension Funds
Development Financial Institutions
Government policy goals for planned, shared and cost-effective development. The following are the main DFIs in Malaysia:-
Bank Pertanian Malaysia
Bank Industri & Technologi Malaysia
Bank Pembangunan & Infrastruktur Malaysia Berhad
EXIM Bank
Malaysian Industrial Development Finance (MIDF)
Insurance Industry
Currently, the total number of licensees under the Insurance Act 1996 stands at 141, comprising 64 insurers, 36 brokers and 41 adjusters. The 64 insurers that were licensed under the Act is categorized into the following groups:
• 10 life and general insurance companies (include Motor Insurance)
• 7 life insurance companies
• 36 general insurance companies (include Motor Insurance)
• 1 life reinsurance company
• 9 general reinsurance companies (include Motor Insurance)
• 1 composite reinsurance company
i) Life Insurance Industry
The life insurance industry is classified into four main categories: Whole Life; Endowment; Temporary; and "Others" category.
ii) General Insurance Industry
General insurance covers motor, marine, aviation & transit insurance (MAT), fire insurance and miscellaneous insurance.
iii) Reinsurance
A substantial amount of the insurance premiums collected used to flow overseas through international re-insurance.
iv) Insurance Intermediaries
Besides companies that are involved in life insurance, general insurance and reinsurance businesses, there are 37 insurance brokers and 42 insurance adjusters licensed to operate in the Malaysian insurance market.
a) Insurance Broker
b) Insurance Adjuster
v) Takaful (Islamic Insurance)
Takaful may be defined as a pact to guarantee and assist one another. In commerce, Takaful may operate within the Mudharabah (Sharing) and Tabarru (Donation) concept.
Financial Regulation
Among the main regulations and guidelines issued by the authorities to govern the financial system in Malaysia are:-
Banking and Financial Institutions Act, 1989 (BAFIA)
BAFIA 1989 is divided into 16 parts and covers a wide spectrum of subject matters related to the banking industry in Malaysia. The Act provides a framework that enables BNM to supervise and regulate three broad groups of financial institutions:
Licensed institutions
Scheduled institutions
Non-scheduled institutions
Control of establishment or acquisition of subsidiaries or opening of offices in Malaysia by a local or foreign licensed institutions
Maintenance of reserve fund, capital, net working funds, liquid assets by the financial institutions
Appointment of auditors, submission of financial statement, exhibition of financial statements, submission of statistics to BNM.
Insurance Act 1996
Under the Insurance Act 1996, BNM retains a substantial degree of regulatory control over the management, control of licensees and the critical aspects of their operations. Among the areas subject to BNM's approval under the Insurance Act 1996 are:
• The appointment of directors and chief executive officers;
• The acquisition or disposal of substantial interests in shares of a licensee;
• The establishment of offices and subsidiaries;
• Appointment of auditors and actuaries; and
• Outsourcing of core insurance activities.
The Insurance Act 1996 which became of use on 1 January 1997, has integrated amendments made to the Insurance Act 1963. It integrated changes needed to address deficiency in the previous legislation. The secondary legislation, the Insurance Regulations 1996 (Regulations) saw quite a few changes in 1999 in respect of bare minimum capital requirement as follows:-
• The least amount paid-up capital prescribed for a licensed local insurer underwriting direct insurance business, or surplus of assets over liabilities in the case of a licensed foreign insurer is set at RM50 million from 31 December 2000; and
• The total minimum margin of solvency (before taking into account insurance fund liabilities) for each class of insurance business of direct and local professional reinsurers is set at RM 60 million from 1 January 2001."
Anti-Money Laundering Act 2001
The Anti-Money Laundering Act 2001 (AMLA) was gazetted on 5 July 2001. AMLA provides wide-ranging new laws for the prevention, detection and trial of money laundering, the forfeiture of property resultant from, or involvement in money laundering and the requirements for record keeping and reporting of suspicious transactions for reporting institutions.
AMLA addresses the following broad issues:-
• Money laundering offences
• Financial Intelligence Unit
• Reporting obligations
• Powers of investigation, search and seizure
• Powers of freezing, seizure and forfeiture of property
Exchange Control
The main objectives of the exchange control policy in Malaysia are to ensure that export proceeds are received promptly in Malaysia, to assist Bank Negara Malaysia in monitoring the settlement of payments and receipts in international transactions as well as to encourage the use of the nation's financial resources for productive purposes. For monitoring and compilation of balance of payments statistics, residents are required to complete statistical forms, Form P and Form R, for each payment or receipt of more than RM10,000 vis-a-vis non-residents.BNM has issued 16 Exchange Control Notices to-date.
The Establishment of Danaharta, Danamodal and Corporate Debt Restructuring Committee
Pengurusan Danaharta Nasional Berhad (Danaharta), Danamodal Nasional Berhad (Danamodal) and Corporate Debt Restructuring Committee (CDRC) was established in 1998 by the Malaysian Government during the Asian Financial Crisis. The objective is to further strengthen the resilience of the banking system during the crisis.
Danaharta
Danaharta is a special purpose limited liability company, established on 20 June 1998, which facilitates the:
• Transfer of problem assets from commercial banks in exchange for consideration;
• Financing and resolution of problem loans and assets;
• Expert management of problem loans through reconstruction and rehabilitation;
• Specialist management of loan security (real estate, shares, infrastructure, etc.);
• Expert and focused management of the process to maximize net returns (i.e. After costs) over a reasonable timeframe.
Danamodal
The objectives of Danamodal are to :
i) re-capitalize and strengthen the banking industry; and
ii) To help facilitate the consolidation and rationalization of the banking system to support the next phase of economic development.
Financial Market
The Financial Market mainly comprises:-
i) The Money and Foreign Exchange markets, and
ii) The Capital and Derivatives Markets
Apart from BNM, following are the statutory bodies established by Malaysian Government in regulating and supporting the above mentioned markets:-
Securities Commission
The Securities Commission (SC) is a statutory body entrusted with the responsibility of regulating and thoroughly developing Malaysia's capital markets. It has direct responsibility in supervising and monitoring the activities of market institutions and regulating all persons licensed under the Securities Industry Act, 1983 and Futures Industry Act, 1993. Its two main roles under the Securities Commission Act 1993 are:
• To act as a single regulatory body to promote the development of capital markets;
• To take responsibility for reform the regulations of the securities market, and for speeding up the processing and approval of corporate transactions.
Kuala Lumpur Stock Exchange
KLSE is the first stock exchange in Malaysia, governed by the Security Industry Act 1983 and governed by the Security Commission (SC). It initiated public trading of shares on 9 May 1960. The KLSE is the legal and prescribed institution for securities trading in Malaysia. Like any other stock exchange, the KLSE provides and maintains a central market-place or facility for buyers and sellers to carry out business in the shares, bonds and different types of securities of companies which are listed on the exchange.
Securities Commission Malaysia
The Securities Commission Malaysia (SC), is responsible for the regulation and development of capital markets in Malaysia. Established on 1 March 1993 under the Securities Commission Act 1993, it is a self-funding statutory body with investigative and enforcement powers. It reports to the Minister of Finance and its accounts are tabled in Parliament annually. The SC's many regulatory functions include:
a.
Supervising exchanges, clearing houses and central depositories;
b.
Registering authority for prospectuses of corporation other than unlisted recreational dubs;
c.
Approving authority for corporate bond issues;
Bursa Malaysia
Bursa Malaysia is an approved exchange holding company under Section 15 of the Capital Markets and Services Act 2007. A public company limited by shares under the Companies Act 1965, Bursa Malaysia operates a fully-integrated exchange, offering equities, derivatives, offshore, bonds as well as Islamic products, and provides a diverse range of investment choices globally.
The exchange places great emphasis in ensuring a fair and orderly market at all times, with high priority on investor protection. Its strength lies in its progressive regulatory approach to ensure that high standards of conduct are practiced by market players.
Market participants:-
1) Stock brokers
2) Trading Participants
3) Investor Protection
4) Risk Management protectors
Developed Infrastructure
Malaysia's constant drive to develop and upgrade its infrastructure has resulted in one of the most well-developed infrastructure among the newly industrialising countries of Asia.
The greatest benefit to manufacturers in Malaysia has been the nation's persistent drive to develop and upgrade its infrastructure.
Latest, the development of Kuala Lumpur Central, a futuristic self-contained city, providing the perfect live, work and play environment. Today, Malaysia can boast of having one of the well-developed infrastructure among the newly industrializing countries of Asia.
Some of the major contributions and part of Infrastructure in Malaysia includes:-
1) Network highways
2) Industrial parks
3) Efficient seaports
4) International Airports
5) Specialized parks
6) Hi-Tech Communications
Money, Tax, Investment:-
1) Property and Investments
2) Housing and Land
3) Banking and Saving Schemes
4) Local Banks
5) International Banks
An overview on Central bank of Malaysia
Established on 26 January 1959 under the Central Bank of Malaysia Act 1958 (CBA 1958).
It is a constitutional body wholly owned by the Government of Malaysia with the paid-up capital gradually increased, currently at RM120 million. The Bank reports to the Minister of Finance, Malaysia and keeps the Minister informed of matters relating to monetary and financial sector policies.
Roles and Functions
Economics & Monetary Policy
Investment and Operations
Regulation
Payment Systems
Supervision
Organisational Development
Communications
Greater engagement with the public
Educate the Public
Integrated Contract Center ( ICC)
Integrated Contact Centre (ICC) was formed, where customer administration and case administration is put under one roof. The ICC comprises the following:
BNMLINK, a face-to-face customer service, to facilitate rapid and effective responses on financial matters for the public. To develop the outreach to provide for outstation customers, BNM MINILINK was established at BNM branches in Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching.
BNM TELELINK which complements the services of BNMLINK by attending to enquiries made via SMS, telephone calls, facsimiles, letters and electronic mails; and
Complaint management and Advisory, which among others, facilitates decree of the public, including SMEs, complaints against institutions under the purview of the Bank.
Mission Statement of the bank:-
Bank Negara Malaysia, as the Central Bank, is committed to excellence in promoting monetary and financial system stability and fostering a sound and progressive financial sector
This will be achieved through:
promoting a work culture which emphasize the highest standards of professionalism and veracity, cautiousness, teamwork and modernization;
developing and maintaining a committed workforce which is highly competent and upbeat, perceptive to the changing needs of the industry;
adopting policies and practices to enhance the competitiveness of local financial institutions to face international competition; and
To have the essential financial funds and financial instruments to efficiently manage financial stability.
Financial system of Malaysia
Financial system of Malaysia is progressive and it is sustainable. Malaysia is a balanced economy. The minister of finance Y.A.B Dato' Sri Mohd Najib Bin Tun Abdul Razak. The central bank of Malaysia is "Bank Negara Malaysia". The basic objective of this bank is to promote monetary stability and financial sustainability to check growth of the Malaysia economy. Its primary functions as set out in the newly enacted Central Bank of Malaysia Act 2009 are to:
Formulate and conduct monetary policy in Malaysia;
Issue currency in Malaysia;
Regulate and supervise financial institutions which are subject to the laws enforced by the Bank;
Provide oversight over money and foreign exchange markets;
Exercise oversight over payment systems;
Promote a sound, progressive and inclusive financial system;
Hold and manage the foreign reserves of Malaysia;
Promote an exchange rate regime consistent with the fundamentals of the economy; and
Act as financial adviser, banker and financial agent of the Government
Financial Institutions as at end February 2012
Banks
Malaysian-Controlled Institution
Foreign-controlled Institution
Total
Islamic Banks
10
6
16
Commercial Banks
8
17
25
Investment Banks
15
0
15
International Islamic Banks
0
5
5
Takaful Operators
9
3
12
International Takaful Operators
0
1
1
Insurers
19
17
36
Development Financial Institution
6
0
6
Reinsurers
3
4
7
Retakaful Operators
1
3
4
The banking system involves commercial banks, Islamic banks & investment banks. The non-bank financial institution which includes complement, insurance companies & Takaful operators which conducts institutions in organizing savings & undertaking the financial needs of the country.
The insurance & reinsurance companies takes care of life & general insurance business same way takaful & retakaful operators deal with general and family takaful business.
Islamic Financial Industry
Islamic finance in Malaysia continues to exhibit dynamic growth with a full Islamic financial system that is supported by robust regulatory, legal and Shariah governance frameworks, the many players as well as the indispensable talent and proficiency.
The Malaysian capital market has also recorded total stupendous sukuk amounting to RM200 billion as at September 2011, surpassing the outstanding predictable bond with 58% of market share.
Malaysia International Islamic Financial Centre
In August 2006, the Malaysia International Islamic Financial Centre (MIFC) initiative was launched to position Malaysia as the international hub of Islamic Finance and to strengthen the country's role as an rational epicenter for Islamic finance.
Malaysia is well positioned to act as a gateway to make possible and improve greater international linkages and market integration in Islamic finance between the Asian region and the rest of the world. Situated centrally in the Asian time zone, Malaysia presents itself as a meeting platform for those with surplus funds and those who seek to raise funds from any part of the world.
Malaysia invites global experts, leading players, investors and issuers alike to shape the future of Islamic finance together through the MIFC initiative, leveraging on and benefiting from Malaysia's more than 30 years of experience in Islamic finance, in an environment of innovation and thought leadership
