The banking system in Malaysia consists primarily of commercial banks and is regulated by Bank Negara Malaysia (BNM), the central bank. BNM is responsible for monetary policy and the supervision of financial institutions. Commercial banks accept deposits and offer loans. Investment/merchant banks specialize in areas like corporate finance and advisory services. Islamic banks provide sharia-compliant banking services. Labuan International Business and Financial Centre (IBFC) and International Currency Business Units (ICBU) allow qualified entities to conduct financial activities in foreign currencies. Non-bank financial institutions include provident and pension funds, insurance companies, pawnshops and development finance institutions that support strategic sectors.

1. TOPIC 2
FINANCIAL SYSTEM
IN MALAYSIA

2. BANKING SYSTEMS
Banking system in Malaysia consists of:
The banking system is
the largest component
of the financial system,
accounting for about
67% of the total assets
of the financial system.

3. Bank Negara Malaysia (BNM)
• Bank Negara Malaysia (BNM)
• established on 26 January 1959, under the Central Bank of
Malaya Ordinance 1958.
Objectives of BNM
• To issue currency and keep reserves to safeguard the
value of the currency;
• To act as a banker and financial adviser to the
Government;
• To promote monetary stability and a sound financial
structure; and
• To influence the credit situation to the advantage of
Malaysia.
The introduction of the Banking and Financial Institutions Act 1989 (BAFIA) on 1
October 1989 extended BNM’s powers for the supervision and regulation of
financial institutions and deposit-taking institutions who are also engaged in the
provision of finance and credit.

4. Roles and Functions of Central Bank (BNM)

5. Roles and Functions of Central Bank (BNM)

6. Roles and Functions of Central Bank (BNM)

7. Roles and Functions of Central Bank (BNM)

8. Roles and Functions of Central Bank (BNM)

9. COMMERCIAL BANKS
An institution which accepts deposits, makes business loans, and offer
related services.
The main functions :
• Retail banking services such as the acceptance of deposit, granting of
loans and advances, and financial guarantees;
• Trade financing facilities such as letters of credit, discounting of
trade bills, shipping guarantees, trust receipts and Banker’s
Acceptances;
• Treasury services;
• Cross border payment services; and
• Custody services such as safe deposits and share custody.

10. INVESTMENT BANK/DEVELOPMENT BANKS
Merchant banks emerged in the Malaysian banking scene in the
1970s, making an important milestone in the development of
the financial system alongside the corporate development of
the country. They play a role in the short-term money market
and capital raising activities including financing, specialising in
syndication, corporate finance and management advisory
services, arranging for the issue and listing of shares, as well
as investment portfolio management.
There are currently 12 merchant banks in Malaysia.

11. INVESTMENT BANK/DEVELOPMENT BANKS

12. ISLAMIC BANKS
The banking activities of Islamic banks are based on Syariah
principles (the Islamic principles).
The first Islamic bank established was Bank Islam Malaysia
Berhad, which commenced operations on 1 July 1983. On 1 October
1999, a second Islamic bank, namely Bank Mualamat Malaysia
Berhad was established.
Apart from Islamic banks, other financial institutions also offer
Islamic banking services through the “Islamic Banking Scheme”.
In Malaysia, separate Islamic legislation and banking regulations
exist side-by-side with those for the conventional banking system.
 The legal basis for the establishment of Islamic banks was the
Islamic Banking Act (IBA), which came into effect on 7 April 1983.
The IBA provides BNM with powers to supervise and regulate
Islamic banks, similar to the case of other licensed banks.

13. ISLAMIC BANKS
The main objective of an Islamic Bank is to Prohibit Muslims from dealing with interest
or usury (Riba) which has been from dealing with interest or usury (Riba) which has
been strictly prohibited by Allah and to protect them from one of the biggest sins.

14. ISLAMIC BANKS

15. INTERNATIONAL BUSINESS FINANCIAL
CENTRE (IBFC)
Labuan is located off the north west coast of Borneo and is home to
Malaysia’s International Business and Financial Centre (IBFC). Declared an
international business and financial centre in 1990, Labuan IBFC has steadily
grown in reputation and financial standing over the years.
Labuan Financial Services Authority or Labuan FSA is a statutory body set
up under provisions of the Labuan Financial Services Authority Act 1996, as
a one stop supervisory and regulatory body for Labuan IBFC.
Labuan FSA subscribes to international standards and best practices in
financial services and prudential regulation. To ensure the jurisdiction
remains competitive, the entire legal structure supporting Labuan IBFC was
reviewed in 2010, providing Labuan FSA the scope and authority to further
expand and deepen the range of financial intermediation available in
Labuan.

16. INTERNATIONAL BUSINESS FINANCIAL
CENTRE (IBFC)
Labuan FSA is guided by the following objectives:-

17. INTERNATIONAL CURRENCY BUSINESS
UNIT(ICBU)
An International Currency Business Unit (ICBU) of a
licensed institution, namely Islamic bank, commercial
bank and investment bank, is permitted to conduct a
wide range of Islamic banking business under the
Islamic Banking Act 1983 (IBA) or Islamic banking
business under Section 124 of the Banking and Financial
Institutions Act 1989 (BAFIA) in international
currencies1 other than Malaysian ringgit. The income
arising from the transactions of the ICBU is eligible for
full tax exemption accorded under the Income Tax Act
1967 for ten years from the year of assessment 2007.

18. INTERNATIONAL CURRENCY BUSINESS
UNIT(ICBU)
The following entities are eligible to apply for
approval to establish an ICBU:
(i) An Islamic bank which is licensed under the IBA;
(ii) A bank licensed under the BAFIA (referred to in
these Guidelines as “commercial bank”); and
(iii) A merchant bank licensed under the BAFIA and
holds relevant licences under the securities laws2 to
carry on investment banking business (referred to in
these Guidelines as “investment bank”).

19. INTERNATIONAL CURRENCY BUSINESS
UNIT(ICBU)
The scope of business that an ICBU may carry on is subject to the
licence that the institution holds. As such, an ICBU may carry on its
business in international currencies as follows:
(i) For an ICBU established within an Islamic bank, the business
includes:
(a) commercial banking business;
(b) investment banking business3; and
(c) other banking businesses in Malaysia, as may be specified by
BNM;
(ii) For an ICBU established within a commercial bank, the business
includes banking business as defined in the BAFIA4; and
(iii) For an ICBU established within an investment bank, the business
includes:
(a) merchant banking business as defined in the BAFIA; and
(b) investment banking business as defined in the Banking and
Financial Institutions (Licensed Merchant Banks) (Additional
Business) Order 2007 and subject to the relevant licences issued by
the Securities Commission.

20. NON-BANK FINANCIAL INTERMEDIARIES
Provident and
pensions fund
• 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 or disability benefits.
•The major PPFs in Malaysia comprise the Employees Provident
Fund (EPF), the Social Security Organisation (SOCSO), the
Armed Forces Fund and the Teachers Provident Funds.
Insurance
companies
(including
Takaful)
• there are 141 license holder under Insurance Act 1996 consist
of 64 insurance companies, 36 brokers and 41 adjuster.
• 64 insurance companies is categorized as follows:
• 7 life insurance companies
• 36 general insurance companies (including motor insurance)
• 9 reinsurance companies (including motor insurance)
• 1reinsurance composit companies

21. NON-BANK FINANCIAL INTERMEDIARIES
Yapeim •The first Islamic pawn-broking institution,Mu''assasah Gadaian Islam Terengganu
(MGIT),was set up by the Majlis Agama Islam dan Adat Istiadat Terengganu in January
1992.
• In March 1992, Kedai Al-Rahn (KAR), a subsidiary of Permodalan Kelantan Berhad.
• On 21 August 1993, the MOF announced the Skim Al-Rahnu through the collaboration of
three institutions namely BNM, YPEIM and BKRM
1997:: BIMB
2002:: EON bank and AGRO bank
•Al--Rahnu or pawn-broking is an activity whereby a Valuable item is collateralised to a
debt which maybe utilised as payment should the debt is not repaid within the agreed
period. In the event the Debtor is not able to repay the debt, the pawned asset will be
sold of to settle the outstanding debt and any surplus will be given back to the owner of
the asset. However, if the owner off the asset could not be traced, it is the responsibility
off the Islamic pawn-broker to place the fund in the Baitulmal account for future savings
should any claims be made for the surplus by the owner or his heir.

22. NON-BANK FINANCIAL INTERMEDIARIES
Yapeim Malaysian Islamic Economic Development Foundation (YaPEIM) was
established in October 13, 1976 and incorporated under the Trustees
(Incorporation) Act 1952.
•PRODUCT OF BY YaPEIM
CONTRIBUTION SCHEME THROUGH PAYROLL DEDUCTION
HAJJ SCHEME
AR-RAHNU
CHARITABLE NATIONAL SCHEME

23. NON-BANK FINANCIAL INTERMEDIARIES
Development
Finance
Institution
•The DFIs in Malaysia are specialised financial institutions established by the
Government with specific mandate to develop and promote key sectors that
are considered of strategic importance to the overall socio-economic
development objectives of the country
•These strategic sectors include agriculture, small and medium enterprises
(SMEs), infrastructure, maritime, export-oriented sector as well as capital-
intensive and high-technology industries.
•Roles and Functions of DFIs
1.DFIs provide a range of specialised financial products and services to suit the
specific needs of the targeted strategic sectors
2.Ancillary services in the form of consultation and advisory services are also
provided by DFIs to nurture and develop the identified sectors.
3. DFIs therefore complement the banking institutions and act as a strategic
conduit to bridge the gaps in the supply of financial products and services to
the identified strategic areas for the purpose of long-term economic
development.
4.The DFIs have, to a large extent, contributed to the development and growth
of the targeted sectors.

24. NON-BANK FINANCIAL INTERMEDIARIES
Development
Finance
Institution
(cont)
• DFIs prescribed under Development Financial Institutions Act 2002
1. Bank Pembangunan Malaysia Berhad
2 Bank Perusahaan Kecil & Sederhana Malaysia Berhad (SME Bank)
3 Export-Import Bank of Malaysia Berhad (EXIM Bank)
4 Bank Kerjasama Rakyat Malaysia Berhad
5 Bank Simpanan Nasional
6 Bank Pertanian Malaysia Berhad (Agrobank)
List of other DFIs (not prescribed under Development Financial Institutions
Act 2002)
1. Malaysian Industrial Development Finance Berhad
2 Credit Guarantee Corporation Berhad
3 Lembaga Tabung Haji
4 Sabah Development Bank Berhad
5 Sabah Credit Corporation
6 Borneo Development Corp. (Sabah) Sdn Bhd
7 Borneo Development Corp. (Sarawak) Sdn Bhd

25. NON-BANK FINANCIAL INTERMEDIARIES
National
Saving
banks
•BSN was incorporated on 1 December 1974 under the Ministry of Finance.
With its incorporation, BSN has taken over all the duties and responsibilities of
the Post Office Saving Bank.
•BSN’s mission is to encourage savings, investments and smart financial
management among Malaysians to increase their quality of life.
•BSN has more than 5,100 employees, 382 branches and 621 automatic teller
machine (ATM) nationwide.
•BSN has more than 7 million customers spread throughout the length and
breadth of the country and with savings of more than RM 8 billion.
•BSN is continuously enhancing its services as well as expanding its range of
products for the benefit of its customers.
•BSN’s main products include Personal Financing, Home Loan, Premium Saving
Certificate (SSP), Islamic Banking Scheme, Giro Savings Account, BSN Matrix
and Matrix-I Debit Card as well as Visa and Mastercard credit card.

26. NON-BANK FINANCIAL INTERMEDIARIES
Co-
operative
societies
• Cooperation means working together.
• Therefore, a group of people that working together for an economy
objectives are called co-operative.
• It is a a group of volunteer societies work to improve their economic.
• its function is to helping each other and give support to the
members.
• Co-operation is not for profit, but to gain benefit.
Unit trust • its a collective investment scheme.
• the collection oney is invested by fund manager in various share, bond
or other securities with certain ratio depend on teh fund objectives.
Pilgrims
Fund Board
• formed on 1969.
• it use Islamic principles in its activities.
• Involved in providing facilities for haj performing.
• its main activity is deposit keeper.

27. NON-BANK FINANCIAL INTERMEDIARIES
Housing
credit
institution
• provide a facilities of housing loans. Eg: MBSB
•Also receive savings and private investment. E.g: ASB, Public Mutual
Cagamas
Berhad
•Cagamas Berhad (Cagamas), the National Mortgage Corporation, was
established in 1986 to promote the broader spread of house ownership and
growth of the secondary mortgage market in Malaysia.
•It issues debt securities to finance the purchase of housing loans from financial
institutions and non-financial institutions.
•The provision of liquidity to financial institutions at a reasonable cost to the
primary lenders of housing loans encourages further expansion of financing for
houses at an affordable cost.
•The Cagamas model is well regarded by the World Bank as a successful
secondary mortgage liquidity facility.
•Cagamas is the leading issuer of AAA debt securities in Malaysia as well as one
of the top Sukuk issuers in the world.
•Cagamas’ debt securities continue to be assigned the highest ratings of AAA and
P1 by RAM Rating Services Berhad and AAA/AAAID and MARC-1/MARC-1ID by
Malaysian Rating Corporation Berhad, denoting its strong credit quality.

28. NON-BANK FINANCIAL INTERMEDIARIES
Credit
Guarantee
Cooperation
•Credit Guarantee Corporation Malaysia Berhad engages in the formulation and
management of viable credit guarantee schemes.
• It helps small and medium-sized enterprises, through the network of branches
of the commercial banks and finance companies, by providing guarantee
coverage for partly secured and unsecured credit facilities of manufacturing,
priority, and other sectors.
•The company was founded in 1972 and is based in Petaling Jaya, Malaysia.
Leasing
Companies
•Leasing and factoring companies is formed to complete the banking institution
loan activities to enable any business companies to lease their equipment or
machines to funding their business activities.
Factoring
Companies
• factoring is one form of flexible loans, it is a advance money for the company to
issue a new invoice.
• 2 advantages :
• first : factoring is flexible wherea companies can make a loans based on its
sales growth. This is important becase a companies usually have to pay for
their raw material before get paid by customers.
• secondly : a second alternative if companies dont have any asset for get a
financing.

29. NON-BANK FINANCIAL INTERMEDIARIES
Venture
Capital
Companies
•Malaysia Venture Capital Management Berhad is a venture capital firm
specializing in technology sector investments.
• The firm invests in startups, seed capital, early stages, and expansion onwards
of high growth companies.
•It invests through direct ventures, seed ventures, and Outsource Partners
Programme (OSP).
•The firm seeks to invest in biotechnology and life sciences; electronics;
information technology; internet; semiconductor; telecom and networking; local
information; technology; communications; and medical and health services.
Zakah
Administrati
on in
Malaysia
•Zakat institution is an integral part of the Islamic socio-economic system.
•The respective state authority involved in zakat administration carries out the
following responsibilities: promotion, collection and distribution of zakat; organized
assistance to the poor and needy; including other asnaf in accordance to guidelines
prescribed by the Syariah.
•The collection of zakat was privatized. For example, Pusat Pungutan Zakat Wilayah
Persekutuan (1991), Lembaga Zakat Selangor (1994), Pusat Urus Zakat Pulau Pinang
(1994), Pusat Kutipan Zakat Pahang (1995), Pusat Zakat Negeri Sembilan (1998) and
Pusat Zakat Melaka (2001).

30. NON-BANK FINANCIAL INTERMEDIARIES
Wakaf •Waqf is a form of charity with special features that has permanence and
continuity. The beneficiaries can benefit from the waqf property for years,
generations or even centuries.
• Waqf is a form of worship to Allah and has significant contribution to
economic development as it plays an important role as wealth redistribution
mechanism.
•In common tradition, properties given out for waqf purpose are namely
mosque, land for Muslim cemeteries, business premises, agriculture lands,
religious schools, etc.
•In the modern times, majority of Muslim scholars accept cash waqf, share of
waqf, waqf of shares and takaful waqf as form of waqfs. This article aims to
discuss the role of waqf in achieving the hike in economic development
focusing on the human welfare among the Malaysian society.
•Waqf plays a vital role in poverty alleviation, health services, education,
orphanage centre, mosques and residences for the needy society.

31. NON-BANK FINANCIAL INTERMEDIARIES
Trustee •Trustee (or the holding of a Trusteeship) is a legal term which, in its
broadest sense, can refer to any person who holds property, authority, or a
position of trust or responsibility for the benefit of another. Although the
strictest sense of the term is the holder of property on behalf of a
beneficiary.
•Maybank Trustees Bhd (MTB), wholly owned by the Maybank Group, was
incorporated on 12 April 1963 and registered as a Trust Company under the
Trust Companies Act 1949 on 11 November 1963. We have been delivering
fiduciary solutions to our clients in Malaysia for over 40 years and offer a
wide range of services to individuals, corporations and government bodies.