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Topic 5 non bank financial intermediaries


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Topic 5 non bank financial intermediaries

  2. 2. <ul><li>NBFI are mainly supervised by government agencies. These can be divided into five major group consisting of: </li></ul><ul><li>The development finance institutions </li></ul><ul><li>The savings institutions </li></ul><ul><li>The insurance companies </li></ul><ul><li>The provident and pension funds. </li></ul><ul><li>The financial intermediaries that consist of </li></ul><ul><li>- Factoring Companies </li></ul><ul><li>- Leasing Companies </li></ul><ul><li>- Credit Institutions </li></ul><ul><li>- Units Trust </li></ul><ul><li>- Cagamas </li></ul><ul><li>- Credit Assurance Companies </li></ul>ROLES AND FUNCTION
  3. 3. <ul><li>Development finance companies (DFI) are established by government to promote investment in the manufacturing and agriculture sectors . </li></ul><ul><li>Some of the institutions have a distinct agricultural while others operate primarily in the commercial and industrial sectors of the economy. </li></ul><ul><li>Functions of DFI </li></ul><ul><li>Extension of financial assistance </li></ul><ul><li>Participation in equity capital </li></ul><ul><li>Underwriting and wherever relevant </li></ul><ul><li>Act as issuing house for publics share issues </li></ul><ul><li>The provision of guarantees </li></ul><ul><li>Help in identification new project. </li></ul><ul><li>Provide ancillary financial </li></ul><ul><li>Technical and managerial advices </li></ul>DEVELOPMENT FINANCE COMPANIES
  4. 4. <ul><li>DFI specializes in medium and long financing as well as supply of financial </li></ul><ul><li>services not normally provided by the commercial banks and finance companies. </li></ul><ul><li>Commercial banks traditionally focus their business on only short term lending to finance working capital. </li></ul><ul><li>Their medium to long loans, whatever given, are generally extended to larger and more established enterprises with high credit standing. Further, commercial banks are not equipped with the expertise to appraise projects involving complex industrial and agriculture technology. </li></ul><ul><li>To overcome the gap in the supply of financial services and s apart of development strategy, the government has established specialized DFI. </li></ul>DEVELOPMENT FINANCE COMPANIES
  5. 5. <ul><li>Exist to compliment the commercial banks and finance companies as the major deposit taking institutions. </li></ul><ul><li>Promote and mobilize savings especially among the middle and lower income groups in the rural areas not adequately served by commercial banks and finance companies. </li></ul><ul><li>The main saving institutions in Malaysia are Bank Simpanan Nasional (BSN 1974) through a reorganization of the former Post Office Savings Bank. </li></ul><ul><li>The BSN was then set up to promote and mobilize private savings, especially the small savers, in order to finance economic development programs in the country. </li></ul><ul><li>Bank Rakyat is notable among the credit co-operative in this respect. </li></ul><ul><li>Bank Rakyat was to channel funds made available by the government as loans to the farmers as well as to promote thrift and savings among rural population. </li></ul>SAVING INSTITUTIONS
  6. 6. <ul><li>Is a group of financial schemes designed to provide members and their dependents with a measure of social security in the form of retirement, medical, death, and disability benefits. </li></ul><ul><li>Example: health and medical schemes, compulsory workmen compensation insurance, public provident and pension funds as well as private provident and pension schemes. </li></ul><ul><li>The major provident and pension funds in Malaysia comprise the Employees Provident Fund (EPF), the Social Organizations (SOCSO), the Armed Forces Fund, the Teacher Provident Funds and other approved private provident and pension funds. </li></ul><ul><li>They has play an important role in the development of Malaysia economy. These funds serve as important mobilizes of long term savings in the economy for rechanelling into both the public and private sectors to finance long term investment. </li></ul><ul><li>As known as second largest group financial in the institutions in term of aggregate assets, next to banking institutions. </li></ul>PROVIDENT AND PENSION FUNDS
  7. 7. <ul><li>Basics types of insurance business in MAS are Life insurance, General insurance </li></ul><ul><li>Export credit insurance. </li></ul><ul><li>Insurance business is a financial service whereby policy holders are given financial protection against loss of property, income or life for premium. Insurance companies have to spread their risks over the insured community and take calculated risks to be able to cover for possible claims. </li></ul><ul><li>Life insurance companies are primarily concerned with the insurance of the life of individuals including coverage against or illness. </li></ul><ul><li>General insurance- cover the risks of non life business such as loss of property or income arising from accident, burglary, fire, floods or other unexpected events. </li></ul><ul><li>Insurance companies mobilize substantial funds through the acceptance of premium particularly long-term funds for life insurance. </li></ul>INSURANCE COMPANIES
  8. 8. <ul><li>A  financial intermediary  is a financial institution that connects surplus and deficit agents. The classic example of a financial intermediary is a bank that transforms bank deposits into bank loans. </li></ul><ul><li>Through the process of financial intermediation, certain assets or liabilities are transformed into different assets or liabilities. </li></ul><ul><li>As such, financial intermediaries channel funds from people who have extra money (savers) to those who do not have enough money to carry out a desired activity (borrowers). </li></ul><ul><li>At the same time, these intermediaries were established in response to government effort to promote grater bumiputera participations in Malaysia economy as well as to assist in the development of financial market. </li></ul><ul><li>These other financial intermediaries can be broadly divide into two group based on their main functions: </li></ul><ul><li>Savings oriented institutions </li></ul><ul><li>Financing oriented institutions </li></ul>FINANCIAL INTERMEDIARIES
  9. 9. <ul><li>Factoring companies are financial organizations that will finance the receivables of businesses that need to accelerate payments for merchandise that has been sold to customers but not yet received. </li></ul><ul><li>Take total control of the accounts receivable and cannot look back to the customer if some of the invoices are not paid. </li></ul><ul><li>There are drawbacks to this kind of financing which can be done two ways. </li></ul><ul><li>Maturity Factoring </li></ul><ul><ul><li>Under this type of arrangement, the factor will take over the entire process of issuing credit and the collection of accounts and send the seller the amount of receivables based on the average date they are due. The factor will perform this service for a fee that ranges from ¾ of 1% to 2%. Of course, that arrangement is predicated on the projected loss ratio of the book of receivables assumed by the factor. </li></ul></ul><ul><li>Discount Factoring </li></ul><ul><ul><li>The selling company will transmit the receivables to the factor and will, in turn, receive payment for them based on their average due date. That amount will be reduced by such things as returned merchandise, the cash discount for early payment, and claims that may arise from the debts. The factor will charge an interest rate based on the average daily balances of 2%-3% over the prime rate. </li></ul></ul>FACTORING COMPANIES
  10. 10. <ul><li>Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. </li></ul><ul><li>Leasing & factoring companies were set up to complement banking institutions lending activities by enabling business to lease equipment and machinery or to finance their activities in advance </li></ul>LEASING COMPANIES
  11. 11. <ul><li>A unit trust is a form of collective investment constituted under a trust deed. </li></ul><ul><li>Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities. </li></ul><ul><li>Unit trusts are open-ended investments; therefore the underlying value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. Each fund has a specified investment objective to determine the management aims and limitations. </li></ul>UNIT TRUST
  12. 12. <ul><li>A credit institution is a company the principal and permanent economic activity of which is to receive cash deposits and other repayable funds from the public and to grant loans for its own account and in its own name and provide other financing. Receipt of deposits from public grant the right to companies to use the name of 'a bank'. Of the companies established in Estonia, only the companies that have received an activity license of a credit institution from the Financial Supervision Authority may raise deposits from public. </li></ul><ul><li>For establishment of credit institutions, an application for activity licence should be submitted to the Financial Supervision Authority .  </li></ul>CREDIT INSTITUTIONS
  13. 13. <ul><li>Cagamas Berhad (&quot; Cagamas &quot;), the National Mortgage Corporation and leading securitisation house, was established in 1986. </li></ul><ul><li>- to aid Malaysians with affordable housing, </li></ul><ul><li>- to becoming a leader in securitisation. </li></ul><ul><li>- to promote the secondary mortgage market in Malaysia. </li></ul><ul><li>Cagamas issues debt securities to finance the purchase of housing loans and other consumer receivables from financial institutions, selected corporations and the Government. </li></ul><ul><li>The provision of liquidity, capital and risk management tools at a reasonable cost to the primary lenders of housing loans encourages further financing of houses at an affordable cost. </li></ul><ul><li>Cagamas is the second largest issuer of debt instruments after the Government of Malaysia and its debt securities have been rated AAA by RAM Rating Services Berhad and Malaysian Rating Corporation Berhad. </li></ul>CAGAMAS BOND
  14. 14. <ul><li>This company is the dealer to assist you in obtaining financing. Usually these companies will give their attention to new traders to start their business on a small scale. Among the services provided by this company are: Help small businesses obtain loans from commercial banks at reasonable interest rates. Make loans in accordance with the guarantee scheme to qualify for the individual , society, partnership firm and paid-up capital of less than RM 200 thousand. </li></ul>CREDIT ASSURANCE