MICROCAPITAL STORY: Malaysia Allows International Banks To Provide Microfinance

It was reported in the Malaysian Star newspaper recently that the Ministry of Finance in Malaysia has allowed international banks with operations in Malaysia to provide microcredit. Datuk Seri Ahmad Husni Hanadzlah, the country’s Finance Minister, was quoted as saying that international banks would be permitted to open ten branches nationwide for this purpose. He was also quoted as stating that the main purpose of the new policy was to help ‘small players’ grow their businesses. Datuk Seri Ahmad Husni Hanadzlah further added that the recent move was an additional boost to the Malaysian Ringgit 150 million (approximately USD 42 million) that was recently allocated to the ‘Tekun’ fund to assist small entrepreneurs. According to Malaysia’s Daily Express report, the Tekun Fund, a fund set up to assist small businesses in the rural and agricultural sectors, was allocated the cash injection to help the fund overcome financial difficulties.

In a report in the International Financial Law Review (IFLR) entitled ‘Malaysia: The Action Plan’, Mr. Caesar Loong, a senior lawyer in a private law firm in Malaysia and a board member of the EU-Malaysia Chamber of Commerce and Industry, discussed how stimulus packages recently introduced by the Malaysian government would impact the market for mergers and acquisitions in the country. In response to the current financial turmoil, the Malaysian government introduced a Ringgit 60 billion stimulus package (approximately USD 16.7 billion) on 10 March 2009 and a Ringgit 7 billion (approximately USD 2 billion) stimulus package on 4 November 2008, along other measures designed to liberalise the financial sector. In part of his article, Mr. Loong mentioned that part of the initiatives introduced included a plan to allow locally incorporated foreign commercial banks to establish four conventional banking branches in 2010 and ten microfinance branches in 2009.

The report on the IFLR is consistent with a press release issued by the central bank of Malaysia, Bank Negara, on recently introduced measures to boost operational flexibilities for the finance sector in the country. The press release noted that the central bank intends to enhance the opportunity for locally-incorporated foreign commercial banks to increase their potential by providing financial services to the underserved sectors of the economy. This meant that, with immediate effect, locally-incorporated foreign commercial banks can establish up to ten microfinance branches. Further branches will be considered based on the effectiveness of these branches in serving microenterprises. The press release also indicated that the central bank intended to promote greater financial inclusion and enhance the ability of the locally-incorporated foreign commercial banks to have a more effective intermediation role in the domestic economy. Consequently, locally-incorporated foreign commercial banks in Malaysia will be allowed to establish up to four new branches in 2010 based on a distribution ratio of 1(market centres): 2(semi-urban areas): 1(non-urban areas).

Additional resources:

CENTRAL BANK OF MALAYSIA: Press Release On Liberalisation Of The Financial Sector

THE PRIME MINISTER’S OFFICE OF MALAYSIA: Press Release On Liberalisation Of The Financial Sector

THE FOUNDATION FOR DEVELOPMENT COOPERATION: Microfinance In Malaysia – Time To Rebuild

MICROCAPITAL STORY: Bank Negara Malaysia Launches a $56.6m Micro Enterprise Fund

MICROCAPITAL STORY: Malaysia’s Central Bank to Offer African Governments Assistance in Developing National Microfinance Strategies

MICROCAPITAL STORY – Highlights From A Hanson Wade Conference On Microfinance Investments And Observations By Key Panelists From MFX Solutions, ACCION, OPIC, Deutsche Bank, Microfinance Transparency And Others