NON-BANK FINANCIAL INSTITUTIONS Explain roles and functions of non-bank financial institutions. Discuss the contemporary issues about non-bank financial institutions. At the end of this chapter, you should be able to:
Table of Contents Introduction on NBFIs Savings institutions Development Financial Institutions (DFIs) Takaful and Retakaful Operators 01 03 02 04 Page 02 05 Contemporary Issue
Non-Bank Financial Institutions (NBFI) There is no standard and formal definition for NBFIs. Different countries would have different definitions of NBFis and there are no standard function that it should play. NBFIs generally means any institution which is not a bank but is involved in offering financial products and services. Most NBFIs provide services that are also provided by banks. (ASAS, 2022) ISLAMIC FINANCIAL SYSTEM CONTINUE Page 03
Characteristics Financial institutions that do not have a full commercial banking license and are not governed by the banking laws. (for example, Development Financial Institutions (DFIs) are governed under Development Financial Institutions Act 2002 However, NBFIs have gained the approval by the Minister under Section 10 of IFSA 2013. In the context of Malaysia, NBFIs are: Page 04 Not Governed by the Banking Laws Examples: Cooperatives: MBSB, Bank Rakyat DFIs Insurance/takaful Provident and pension funds: KWSP, KWAP, SOCSO Microfinance institutions: AIM, Ar-Rahnu Moneylenders: Licensed by KPKT Others: Cagamas, Danajamin, CGC
Purpose of Creation Facilitate bank-related financial services to specific segment of the society. Investment, risk pooling, contractual savings, market brokering. In the context of Malaysia, NBFIs are: Page 05 Fulfil Specific Social Objectives Fill-in the Gap Banks are restricted to its function as 'intermediary' Banks are managing depositor's money and operating for profit motives which calls for costefficiency in their operations. NBFIs will help to fill-in the gaps left out by the banks.
D e v e l o p m e n t F i n a n c i a l I n s t i t u t i o n s T h e D FIs in M ala y sia a r e s p e cialis e d fin a n cial 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 (BNM,2022). ISLAMIC FINANCIAL SYSTEM CONTINUE P a g e 0 6
Roles & Functions Page 07 Provide specialised financial products As specialised institutions, DFIs provide a range of specialised financial products and services to suit the specific needs of the targeted strategic sectors. Provide ancillary services Ancillary services in the form of consultation and advisory services are also provided by DFIs to nurture and develop the identified sectors. Act as a strategic conduit DFIs 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 longterm economic development.
Page 08 DFIs Under BNM DFIs Prescribed Under DFIA With the enactment of the DFIA, selected DFIs have been placed under the regulatory purview of Bank Negara Malaysia (the Bank). As part of the regulatory and supervisory framework, the Bank monitors the activities and financial performance of these institutions to ensure that they perform their mandated roles in a prudent manner, supported by strong corporate governance and best practices. In regulating and supervising the DFIs, the Bank is cognisant of the unique characteristics and functions of the DFIs, where the relevant stakeholder ministries of the respective DFIs continue to be accorded the responsibility to provide broad policy direction on the strategic roles and targeted sectors supported by each institution. Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat) Bank Pembangunan Malaysia Berhad (BPMB) Bank Pertanian Malaysia Berhad (Agrobank) Bank Simpanan Nasional (BSN) Export-Import Bank of Malaysia Berhad (EXIM Bank) Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank)
Page 09 Specialized Functions of DFIs Bank Rakyat Established on 28 September 1954 under the Cooperative Ordinance 1948 (known as the Cooperative Societies Act 1993). To support the mission of the Ministry to consolidate the cooperative sector as the mainstay of economic growth of the nation. BPMB Incorporated in 1973, Bank Pembangunan Malaysia Berhad (“BPMB”) is one of Malaysia’s first Development Financial Institutions (“DFIs”) and is wholly owned by the Malaysian Government through the Minister of Finance Inc. Mandated to provide medium to long-term financing to the nation’s nascent infrastructure, maritime, oil and gas and technology sectors. Agrobank Bank Pertanian Malaysia (BPM) was established in 1969. Mandated to spur the growth and development of Malaysia’s agriculture industry. The Bank’s financing of the agriculture sector is guided by policies determined by the Ministry of Agriculture and Agro-based Industries.
Page 10 Specialized Functions of DFIs BSN Established on 1st December 1974 under Bank Simpanan Nasional Act 1974, taking over the functions of the former Post Office Savings Bank. The principal objective of the Bank is to promote and mobilize savings, particularly from small savers, and to encourage thrift and the saving habit among Malaysians. EXIM Bank Incorporated on 29 August 1995 as a wholly-owned subsidiary of the Minister of Finance. Mandated to provide credit financing, export credit takaful and guarantee services and facilities to finance and support exports and imports of goods, services and overseas projects and investments with emphasis on non-traditional markets. SME Bank SME Bank was established in 2005, wholly-owned by the Ministry of Finance. Mandated to drive the nation's economic growth by providing not only financing assistance, but also development expertise to small and medium scale enterprises, to allow those businesses to prosper and grow.
THANK YOU. May Allah guide us and increase our knowledge. Readings: Chapter 12 of: Muhammad, M., & Ahmed, M. U. (Eds.). (2016). Islamic Financial System: Principles and Operations (Second Edi). International Shari’ah Research Academy for Islamic Finance (ISRA). Page 32