MPU 3312 – Banking and Finance

Chapter 4 – OTHER FINANCIAL INSTITUTIONS (NON BANK)

DEVELOPMENT FINANCE INSTITUTIONS (DFI’s)

o DFI’s are specialised financial institutions , established by the Government to
promote investments in the manufacturing and agriculture sectors.
o The primary objective of DFI’s in Malaysia is to provide long-term funds tailored to
the needs of borrowers and to develop specific sectors in the economy.
o The Development Finance Institutions Act 2002 (DFIA) was enacted and made
effective on 15 February 2002 to provide a comprehensive regulatory and
supervisory framework to ensure safe and sound financial management of the DFI’s.

A. MALAYSIAN INDUSTRIAL DEVELOPMENT FINANCE BHD

o Incorporated as a public company in March 1960.
o Main activity to provide medium and long term loans for financing new
industrial ventures and expansion, modernisation, diversification or relocation
programmes of existing enterprises.
o MIDF’s wholly owned subsidiary, MALAYSIAN INDUSTRIAL ESTATES SDN
BHD (MIEL), assists small and medium scale industries by designing and
constructing factory buildings in the various industrial estates for sale and rental.

B. BANK PEMBANGUNAN MALAYSIA BHD

o Its objective is to increase Bumiputra participation in business and industry
through financing and equity participation.
o Provide financing for infrastructure projects, particularly Government projects.
o Provides corporate advisory, corporate financing and underwriting services to
companies which are engaged in developing infrastructure projects.

C. SME Bank
o Previously known as Bank Industri dan Teknologi Malaysia Bhd , after
rationalization with Bank Pembangunan dan Infrastruktur Malaysia Bhd.
o Established to undertake development banking activities, with the objective, to
provide financial support and advisory services to the transportation,
manufacturing, export and import and selected services sector.
o Focus its lending activities on companies engaged in the shipping, marine-
related and manufacturing industries.

D. AGRO Bank Malaysia

o Previously known as Bank Pertanian Malaysia.
o Promote sound agricultural development in the country, through the provision of
loans and advances.
o Main function of bank is to co-ordinate and supervise granting of credit
facilities for agricultural purposes/ventures and mobilise savings
particularly from the agricultural sector and community.

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 E. Credit Guarantee Corporation Malaysia Bhd
o Established in 1972 by Bank Negara Malaysia and the commercial banks to
assist Small and Medium Scale Enterprise (SME’s) to gain access to credit
facilities from financial institutions.
o Provide guarantees for loans to SME’s, and act as administrator of special
funds set up by the Government
INSURANCE COMPANIES
o Incorporated under Companies Act 1965.
o Design financial schemes to provide members and their dependants with a
measure of security in the form of retirement, medical, death or disability
benefits.
o Takaful Act 1984 established Islamic Insurance business in Malaysia in
accordance with Islamic laws and principles.
o Two main types of insurance companies namely, life and general.

Life Insurance Companies

o is concerned with the insurance of individual’s lives. As a reward for taking
risks, insurance companies receive income in the form of premiums.
o Insurance premiums computed on the basis of:-
o Age
o Health
o Sum assured together with any other benefits that accrue in the policy.
o There are 3 main types of life insurance policies:-
a. Whole Life Policy
o Insurance company will pay a fixed sum called sum assured upon
death or permanent disability.
b. Endowment Policy
o The sum assured is paid upon death, permanent disability or
maturity of policy, whichever happens first.
o There is a savings element mixed with protection.
o Insurance premiums are higher.
c. Term Assurance
o The sum assured is payable only in the event of death or permanent
disability within the term of the policy.
o No benefit is payable if the insured survives beyond the end of term.
o Insurance premiums charged are lower based on age, health, sum
assured and term.
General Insurance Companies
o Covers all risks except risk of life.
o It operates on the principle of pooling of risks by bringing together sufficiently
large number of people, who seek protection from any common risk of loss of
property or income, arising from accidents, burglaries, fires or unexpected
events.
o In the event of a loss, the insured will be compensated for loss.

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 o General insurance are usually for 12 months duration and are renewable
thereafter.
o Premiums on general insurance business depend on statistical probablility of
occurrence of loss causing events together with the type of risk and value.
o Major classes of general insurance in Malaysia are marine, aviation and transit
(MAT), fire, motor and miscellaneous insurance
SAVINGS INSTITUTIONS
o It complement the commercial banks and finance companies as the major
deposit taking institutions.
o Main savings institutions are National Savings Bank and Co-Operative
societies.
o Promote savings among middle and lower income groups in the rural areas.

BANK SIMPANAN NASIONAL

o Principal activity is to carry out the functions of a national savings bank,
namely, to accept deposits and provide retail loans to small borrowers.
o The Government guarantees all deposits.
o Unique deposit product- premium savings certificates, attractive prizes for
lucky draw winners.
o Loan products- housing loans, credit cards, hire purchase and
corporatpere loans.
Co-OPERATIVE SOCIETIES
o It is an organisation of consumers or producers who voluntarily pool their
resources together to meet common objectives.
o Set up under Co-Operative Societies Ordinance 1948. Repealed by Co-Operative
Societies Act 1993 (Act 502).
o Provide opportunities for members to save, invest and participate in economic
interest.
BANK KERJASAMA RAKYAT MALAYSIA BHD
o Established under Co-Operative Ordinance 1948. Repealed by Co-Operative
Societies Act 1993.(Act 502)
o Main objective is to improve the standard of living through the provision of
financing and financial and advisory services in the commercial, industrial,
agricultural and other sectors to encourage savings among its member.
o All facilities offered based on Syariah principles

EMPLOYEES PROVIDENT FUND

o The Employee Provident Fund is the premier provider of retirement savings for all
private and non pensionable employees in the country. It manages a mandatory
savings scheme through which both employees and employers contribute a fixed
percentage of the employees’ monthly salary into the employees’(members’)
accounts which keeps growing until the employee retires. Other than provide for
the retirement needs of Malaysians, the EPF also allows members to withdraw

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 from their savings to fund their educational and health needs as well as to help
secure a home as these would enhance the value of thei post-retirement life.
o The EPF also seeks to ensure that Malaysians are aware of their retirement
needs and carries out educational campaigns via the print and electronic media
to highlight the importance of prudent financial planning to ensure financial
security in one’s golden years.
PERBADANAN INSURANS DEPOSIT MALAYSIA (PIDM)
o Deposit Insurance is a system established by the Government to provide
protection for depositors against the loss of insured deposits placed with member
banks in the event of a member bank’s failure. This system was introduced in
Malaysia on 1 September 2005.
o Deposit insurance is generally a government sponsored scheme. It is not
provided or related to or managed by any general or life insurance companies. In
Malaysia, the deposit insurance system is administered by Perbadanan Insurans
Deposit Malaysia (PIDM).
o PIDM is a Government agency established under Akta Perbadanan Insurans
Deposit Malaysia (PIDM Act).PIDM was established in 2005 to administer the
national deposit insurance system aimed at protecting depositors.PIDM’s role has
been expanded to also administer the Takaful and Insurance Benefits Protection
System (TIPS) to provide protection to owners of Takaful certificates and
insurance policies.
o PIDM also provides incentives for sound risk management in the financial
system, and promotes and contributes to the stability of Malaysia’s financial
system.
o PIDM is also known internationally as the Malaysia Deposit Insurance
Corporation (MDIC).
o PIDM protects depositors holding insured deposits with member banks.
o Deposit insurance protection is provided automatically at no charge to depositors.
o In the event of a member bank failure, PIDM will promptly reimburse depositors
on their insured deposits.
o Promotes public confidence in Malaysia’s financial system by protecting
depositors against the loss of their deposits.
o Reinforces and complements the existing regulatory and supervisory framework
by providing incentives for sound risk management in the financial system.
o Minimises costs to the financial system by finding least cost solutions to resolve a
non-viable member bank.
o Contributes to the stability of the financial system by dealing with non-viable
member banks expeditiously and reimbursing depositors as soon as possible.
o Member banks of PIDM are all commercial banks licensed under Banking and
Financial Institutions Act and all Islamic banks licensed under Islamic Banking
Act including foreign banks operating in Malaysia. Membership is compulsory as
provided under the PIDM Act.
o A depositor’s nationality and place of residence do not affect deposit insurance
protection. Deposits placed with member bank will be protected up to
RM250,000-00 per depositor per member bank.
o Deposits which are eligible for protection include:-
a. Savings deposits

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 b. Current or demand deposits
c. Fixed deposits
d. Foreign currency deposits
e. Principal guaranteed conventional structured products.
f. Islamic deposits accounts such as wadiah savings accounts and Mudharabah
Investment deposits and
g. Bank drafts, cheques, other payment instructions or instruments made
against a deposit account.
PIDM may approve any other financial instruments, from time to time, as being eligible for
deposit insurance protection.
o The following products are NOT eligible for deposit insurance protection :-
a. Conventional structured deposits that are not principal-guaranteed.
b. Deposits not payable in Malaysia.
c. Money market deposits
d. Negotiable instruments of deposits (NID’s) and other bearer deposits
e. Repurchase agreements
f. Unit trusts, stocks and shares
g. Gold-related investment products or accounts.