OTHER FINANCIAL INSTITUTIONS (NON-

BANK)
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To identify the development finance institutions
in Malaysia
To discuss its role and functions
To identify the provident and pension funds in
Malaysia
To discuss functions and roles of insurance
companies in Malaysia
To identify what are the functions and roles of
other non-bank financial institutions
To discuss these institutions role and functions
in assisting the economic growth

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Development Finance Institutions
Provident and Pension Funds
Insurance companies
Saving institutions
Unit trusts
Factoring and leasing Companies
Venture capital companies and others
These institutions role in assisting the economic
development


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What are DFIs?
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.

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Roles and Functions of DFIs
As specialised institutions, DFIs provide a range of
specialised financial products and services to suit the
specific needs of the targeted strategic sectors.
Secondary services in the form of consultation and
advisory services are also provided by DFIs to nurture
and develop the identified sectors.
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.
The DFIs have, to a large extent, contributed to the
development and growth of the targeted sectors.

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Strengthening Financial Conditions and
Operational Structure of DFIs
Given the significant role of DFIs in developing and
promoting the identified strategic sectors of the
economy, it is important for DFIs to be strong,
effective and efficient in performing its mandated
roles better.
Initiatives taken towards achieving these objectives
include strengthening the regulatory and
supervisory framework, building capacity and
capability, as well as enhancing operational
efficiency of these institutions.

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One of the significant milestones in providing a
comprehensive regulatory and supervisory framework
was the enactment of the Development Financial
Institutions Act 2002 (DFIA) to ensure financial and
operational soundness of the DFIs and that the
institutions perform their mandated roles prudently,
efficiently and effectively.
The DFIA, which became effective on 15 February 2002,
takes into consideration the unique roles, functions and
objectives of each DFI as well as the relevant provisions
in the existing statutes.
It also aims to ensure that the DFIs' policies and
objectives are consistent with the Government's
initiatives and policy direction in developing and
promoting the identified targeted sectors to support the
national economic development agenda.

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Placement of DFIs under Bank Negara Malaysia
With the enactment of the DFIA, selected DFIs have been
placed under the 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
cognizant 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.

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DFIs prescribed under Development Financial
Institutions Act 2002
Bank Pembangunan Malaysia Berhad
Bank Perusahaan Kecil dan Sederhana Malaysia
Berhad (SME Bank)
Export-Import Bank of Malaysia Berhad (EXIM Bank)
Bank Kerjasama Rakyat Malaysia Berhad
Bank Simpanan Nasional
Bank Pertanian Malaysia Berhad (Agrobank)
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List of other DFIs (not prescribed under
Development Financial Institutions Act 2002)
Malaysian Industrial Development Finance Berhad
Credit Guarantee Corporation Berhad
Lembaga Tabung Haji
Sabah Development Bank Berhad
Sabah Credit Corporation
Borneo Development Corp. (Sabah) Sdn. Bhd.
Borneo Development Corp. (Sarawak) Sdn. Bhd.
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DFIs in the Financial Landscape
DFIs will remain important and relevant with a
greater complementary and developmental role in
supporting the nation's socio-economic objectives.
DFIs would continue to support the needs of the
strategic sectors and at the same time, the roles are
expected to evolve to one that facilitate greater
extension of financing to the targeted and new
growth areas.

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Employees Provident Fund (EPF)
A national social security organization operating
through a provident fund scheme in Malaysia
Primary objective is to provide retirement benefits
to the members
Sources of funds from the collection of monthly
contributions from members
Uses of funds investment in a number of financial
instruments such as MGS, money market
instruments, loans and bonds, equities and
property
Return to the members is in term of dividend
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Pension Funds
Lembaga Tabung Angkatan Tentera (LTAT) is the
superannuation scheme for members of the Armed
Forces of Malaysia.
Members contribute 10% of their monthly salary to the
scheme
As a return, LTAT provides retirement and other benefits
to the retired personnel of the Armed Forces
Rule indicates that LTAT should invest not less than 70%
of its funds in the unit trust investment and not more
than 30% in the non-unit trust investment.
LTAT also invests in the money market and stock market
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Unit trusts are investment products that allow
investors with similar investment objectives
to pool their funds into one large fund that
will be managed by professional fund
managers.
The fund managers invest the pooled funds
in a wide range of securities, such as stocks
and fixed income instruments.
Unit trusts carry low risk because the
portfolio is spread over several types of
investment categories
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Benefits of investing in unit trusts:
Diversification of risk through an investment
portfolio
Professional fund management
Easy access to liquidity
Convenience
Affordable investment amounts
Examples of Malaysian unit trusts:
Amanah Saham Bumiputra
Affin Fund Management Berhad
Alliance Investment Management Berhad
AmInvestment Services Berhad
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Life and general business
Life business only
General business only
Life and general reinsurance business
Life reinsurance business
General reinsurance business
Takaful operators
Retakaful operators
International takaful operator
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Life insurance industry
The life insurance industry is classified into four
main categories: Whole Life; Endowment;
Temporary; and "Others" category.
The life insurance industry is generally the
strongest, from both financial and structural
viewpoints. The regulatory control over them has
always been strict and only the larger and a better
managed companies have been allowed to have a
license
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Life insurance industry
In the last few years, the investment-linked business is
gaining popularity in the local insurance market. In year
2000, five insurers were granted approval to undertake
investment-linked business under Section 7 of the Act.
The increased number of players saw the establishment
of 22 new investment-linked funds during the year,
giving a total of 42 funds being offered to the public as
at end of 2000. Investment-linked products provide an
alternative investment channel to policy owners while
maintaining the core protection element. These range of
funds, established to meet the investment objectives of
the policy owners, have drawn encouraging response
from the public, given the shift in consumers preference
from protection based policies to investment type
products.
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General insurance industry
General insurance covers motor, marine,
aviation & transit insurance (MAT), fire
insurance and miscellaneous insurance.
Motor insurance can be divided into "Act" and
"non-Act". The former is the minimalist "third
party" cover required under the law for the
vehicle to be legally useable on public roads.
The latter is a comprehensive motor
insurance.
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Reinsurance
A practice where an insurance company (the insurer)
transfers a portion of its risk to another (the reinsurer).
Legal rights of the policyholders (insureds) are in now
way affected by reinsurance, and the insurer remains
liable to the insureds for the insurance policy benefits
and claims.
A substantial amount of the insurance premiums
collected used to flow overseas through international re-
insurance. In order to increase the insurance premiums
retention ratio, the Government has encouraged the
setting-up of local re-insurers. The business landscape
had since then changed with the setting up of the
Malaysian Life Reinsurance Group Berhad and other
locally established re-insurance companies.
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Insurance intermediaries
Licensed insurance brokers
Licensed insurance and takaful brokers
Licensed takaful brokers (specialized)
Licensed loss adjusters

Insurance brokers
An Insurance Broker is a professional body which is licensed
by BNM to act on behalf of buyers of insurance to arrange
their insurances with the insurance companies. An insurance
broker also provides expert advice on all insurance matters
and at the same time may make recommendation on a
comprehensive insurance program which suits its respective
client's operations.


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Insurance adjusters
An Insurance Adjusters role is assessing insurance
losses for the insurers as well as claimants, play an
important part in ensuring that claims are settled
properly and serviced efficiently. Almost three-
quarters of adjusters are small players, handling
mainly motor claims.
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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. The consensus,
contract (Aqad) and the partnership are all in sync
with the Syariah Laws, which prohibits the unlawful
taking of other peoples property and that any
business has to be transacted with the mutual
consent of all parties concerned.
Takaful Act 1984
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Takaful
In many Takaful products, particularly Family class, the
contributions paid by the participants are usually
segregated into two accounts for purposes of protection
and saving. They are kept in the Participant Account and
Participant Special Account. The former account is for
saving and the latter for the protection or a sum meant
to cover the risks. The ratio of the split is agreed at the
time of applying for the participation in the particular
takaful cover. The ratio can favour any party except that
it must be agreed upon prior to conclusion of the
contract. As can be seen in most of the General Takaful
schemes the contributions are wholly for the Special
Account meant for the risks.
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A financial intermediary established to
promote thrift by accepting savings from the
public. Savings institutions include both
savings and loan associations and savings
banks. Savings institutions are also called
thrift institutions.
25
Venture capital (also known as VC or Venture) is provided
as seed funding to early-stage, high-potential, growth
companies. To put it simply, an investment firm will give
money to a growing company. The growing company will
then use this money to advertise, do research, build
infrastructure, develop products etc. The investment firm
is called a venture capital firm, and the money that it gives
is called venture capital. The venture capital firm makes
money by owning a stake in the firm it invests in. The
firms that a venture capital firm will invest in usually have
a novel technology or business model. Venture capital
investments are generally made in cash in exchange for
shares in the invested company. It is typical for venture
capital investors to identify and back companies in high
technology industries such as biotechnology and IT
(Information Technology).

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Example:
MAVCAP was incorporated in 2001 by the Malaysian
Government and is the nations largest venture
capital (VC) firm which focuses on investments in
the local information, communications and
technology sector (ICT).

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