Agent Banking

Improving Financial Inclusion through New Channels and
Innovative Products
A Case Study of Malaysia
Seminar on SFIs in the New Edition
Tuesday 23 August 2016
Hosted by Bank of Thailand
Kameel Abdul Halim
Deputy Chief Executive of Bank Simpanan Nasional
Agenda
1
Malaysia:
At a glance
2
DFIs in
Malaysia
3
BSN championing
financial inclusion
agenda
4
Channels
5
Products
2
Malaysia at a glance
Quick Facts
Household
income
(B40*)
2.7m
Labour
Force
14.7m
Unemployed
Income per
capita
@3.4%
501.8k
$10,570
63% : 37%
Urban
Rural
*B40 is bottom 40% that household income less than RM3,855 (based on household survey 2014)
Source: Department of Statistic Malaysia
3
Statistics 1
Malaysia at a glance
Population
30.7 mil
Quick Facts
Payment3
Transaction
Volume (Mil)
Fund transfer
Median Age
27.3
Urbanization
50.7
62
71
1991
2000
2010
Rural population (% of total population):
25.30 as of 20152
Bill payment
Investment in
share & unit trust
Re-load
Card & loan
repayment
Total
Internet
Banking
237.7
Mobile
Banking
17.1
74
ATM
Total
53.1
307.9
5.1
1.9
81
6.6
0
0.1
6.7
Financial
Inclusion Index
score 5 for the general
24.9
6.9
3
34.8
population in Malaysia
26
2.2
8.4
36.6
369.2
31.3
66.5
467
0.90
in 2015
Financial Access Points4
Perlis: 51.4%
Kelantan: 42%
Terengganu:
59.1%
Pahang: 50.5%
Sabah:54%
Sarawak:
53.3%
States with urbanization level below 60%
4.5
5.1 ATM
2.3 CDM
Access points per 10,000 adults
Internet & Mobile Bnkg Penetration
2015: 19.8m / 7.3m
2011: 11.9m / 1.6m
1 Department
of Statistics Malaysia
2 Indexmundi.com
3,4,5 BNM Financial Stability and
Payment Systems Report 2015
5 Where 1.00 reflects full inclusion
4
Development Financial Institutions (DFI) in
Malaysia under the purview of BNM
DFIs comes under the purview
of the central bank through
the Development Financial
Institution (DFI) Act 2002
To develop and promote
growth of targeted strategic
sectors of the economy
Export-Import Bank of Malaysia
Bank Pembangunan Malaysia
Specialized financial institutions (sectorial & universal based)
established by the Government with specific roles to play
Bank Simpanan Nasional
To achieve socioeconomic objective
Agro Bank Malaysia
SME Bank Malaysia
Bank Kerjasama Rakyat
To complement the role of
banking institutions
5
How do DFIs fit in?
Institutional Arrangements
Financing
• Banking system
• DFIs
•
•
•
•
•
•
Venture capital companies
Leasing & factoring companies
Cooperatives
Government agencies
Money Lenders
Pawn Shops
Financial Sector
Blueprint
Goals of the New Economic Model
Promoting Financial
Inclusion
Financial system that
provides basic financial
services that are
affordable, appropriate,
convenient and
accessible to all
Advisory
• SME Corp and SME Bank
• Government. agencies
Credit Guarantees
• Credit Guarantee Corporation
Rescheduling & Restructuring
• Small Debt Resolution Scheme
Enhancing
intermediation
capability
Financial system that
effectively and
efficiently allocate
resources to facilitate
the transformation of
Malaysia towards a high
income economy
6
Malaysia DFIs have made
significant stride since 2002
Financial Landscape Total Assets
(as at December 2014)
DFI, 8%
Islamic
Banks, 20%
SME
5.10%
EXIM
5.50%
Agro Bank
6.10%
BPMB
Commercial
&
Investment
Banks, 72%
Total assets in 2014 constitute
8% (RM197 bil/USD49 bil) of
banking sector assets (3%:
2002)
BSN
BR
Tap the capital markets through
Ringgit and Foreign currency bond
and sukuk issuances
14.80%
23.20%
45.20%
Regulated by a regulatory framework
that emphasises on strengthening
capacity and capability
• Capital position & asset quality
• Enhanced governance standard &
7
practices
The DFI Act 2002 carries BNM’s policy intent
Principle
• As the regulatory framework for DFIs and continue to
reflect their unique characteristics.
• Ensure DFIs continue to be safe and sound.
• Lines of accountability and co-ordination with clarity on
the roles of Minister, stakeholder Ministries and BNM in
regulating DFIs;
Outcome
• Boundaries to avoid regulatory arbitrage in the areas of
market conduct, Shariah and the enforcement framework
in the financial services industry; and
• Operations of the law for greater efficiency and
effectiveness.
8
In collaboration with stakeholders, BNM will continue to balance multi
objectives in regulating and supervising DFIs
Ensure sustainable financial
performance
Promote stronger risk
management practices
Recognize developmental role
mandated by Government
Proportionate
approach
Regulatory approach based
on suitability, discretion and
readiness
Supervisory approach at
par with other institutions
Sound financial performance
Improved governance, greater
professionalism and human
capital capabilities
Recognize unique role in the
financial system
Balanced outcome
Continue to deliver developmental
mandates by serving the targeted
sectors
Proportionate in application of capital
standards and access to market
(agent banking)
9
Selected Bank Negara Malaysia (BNM)
Guidelines & Framework for DFIs
Guidelines
Policy objective
Agent Banking
To facilitate the implementation of agent banking in underserved areas, in a reliable, safe and
sustainable manner whilst safeguarding the interest of customers.
Microfinance framework (by
National SME Development
Council)
To encourage financial institutions to provide Microfinance, design right products to meet the
needs of Microenterprises and create wide spread awareness on availability and benefits of
Microfinance.
Capital Adequacy Framework (also
known as the Risk Weighted
Capital Adequacy Framework)
To maintain adequate and strong financial capacity to undertake business activities in supporting
mandated roles. Also to further strengthen and preserve the capital position of the DFIs.
Risk Governance
Focuses on applying the principles of sound corporate governance to the assessment and
management of risks to ensure that risk-taking activities are aligned with an institution’s capacity
to absorb losses and its long-term viability.
Introduction of New Products
Improve the time-to-market for financial institutions to introduce new products or to effect
changes to existing products, promote sound risk management and strengthen financial capability.
Best Practices for the Management
of Credit Risk for DFIs
To lay the initial foundation towards upgrading the prudent conduct of credit granting activities of
DFIs in Malaysia.
10
Establishment of BSN
Established by the Government of Malaysia
with the following objectives:

To promote and mobilise savings,
for the general public particularly
from small savers;

To inculcate the habit of thrift and
savings; and

Financing the economic
development of the nation.
11
BSN by the numbers
10
766
Mobile
Units
46
MFCs
403
ATMs
branch
93
7,017
Agent Bank
VTMs
51%
7,237
> 9mil
RM31bil
Market leader in MF
Employees
Customer base
Total assets
As of June 2016
(USD 7.8b)
12
Government & Central Bank driving national
financial inclusion agenda
Financial Sector Masterplan 2001 - 2010
*Financial Sector
Blueprint 2011-2020
Micro-financing
framework
2005
2009
2006
Basic banking services;
No frills low cost savings
account
2012
2011
Central Bank of
Malaysia Act 2009
*An integrated approach:
•
Financial inclusion for greater shared prosperity
•
Effective and efficient intermediation
2014
Agent Banking
Account ownership for adults from the poorest 40% of households
in Malaysia increased from 50% to 76%
Malaysia's financial inclusion grew from 66% in 2011 to 81% in
2014.
13
BSN is embarking into new channels and technology to
further improve financial inclusion and to tap various
customer segments…
Channels & Products
1
2
Remote
Branches
Agent
Banking
3
Microfinance
4
Mandated
Roles
14
Remote Areas
Making lives better
Place
Song , Sarawak
• Accessible only via express boat from Sibu
• District population as of 2010: 20,046
• Began operations: 23 Apr 2009 with 1 Branch
officer & 3 Tellers
• As of July 2016: Total deposit stood at RM9.8 mil
(USD2.45mil)
Deposit Size
Branch
Population (RM mil/USD Distance
opened
mil)
(Census year)
from KL
year
as of July 2016
Pulau Tioman
2009
432
(2008)
8.220/2.06
350.3 km
Kota Sarang Semut,
Kedah
2010
N/A
9.840/2.25
420.7 km
Beluran, Sabah
2011
104,484
(2010
3.507/0.88
3,981.5 km
Kinabatangan, Sabah
2011
146,987
(2010)
5.104/1.28
4,039.3 km
CPI Jeli, Kelantan
2012
42,882
(2009)
6.068/1.52
360.7 km
Tambunan, Sabah
2016
35,667
(2010)
0.807/0.20
3,810.8 km
USD Conversion Rate: 1 USD equals RM4
15
The story of Belaga
1. Belaga is a small district in Sarawak of East
Malaysia with population as of 2010: 37,102.
2. The nearest town where banks are available is
about 100 km away i.e Town Bintulu, 6 hours
away via gravel road or 5 hours by river.
3. Dependent on their heads of community or
friends to do banking on their behalf.
4. BSN opened the branch in 2011. As of July 2016,
total deposit stood at RM 6.7mil (USD 1.68mil).
16
Agent Banking (Banking Beyond Branches)
Overview Pilot run by 3 banks
•
•
2,322 agents
More than RM1mil (USD250k) transactions
worth more than RM190 million (USD48
mil) has been conducted
2015
Jan 2012
July 2012
BSN: Pioneer of Agent Banking
model in Malaysia
•
•
•
Self-initiated
Started with 200 agents
In support of Malaysian government’s call to
elevate the standard of living of those in rural
communities
*Effective for 5 years from 30 Apr 2015
Aug 2012
Agent Banking Framework
•
•
•
Ensure sound & prudent risk
management to minimize risk
profile of FIs as a result of
dependence on 3rd parties
Safeguard interest of customers
Areas of governance and oversight,
management of agents, customer
protection,
awareness
and
education
Enhanced Agent
Banking
Regulatory
Framework*
17
Agent Banking (Banking Beyond Branches)
As a conduit to greater financial inclusivity
•
Financial services through agents or third party intermediaries.
•
Prior to the introduction of the Agent Banking service, only 40% of the
total 837 mukim (sub districts) in Malaysia had been served 1. As of Dec
2015: 96% enjoying the convenience of banking services.
Number of Agent Banks & Transaction
in Malaysia
63 mil
(USD 16mil)
6,902
3 mil
(USD 750k)
90%
Agents
by BSN
4,120
End 2012
1
Achievements
Currently there are four banks in Malaysia offering Agent Banking : BSN,
Maybank, AgroBank and RHB.
End 2015
Asian Link: Going Beyond the Conventional (2013)
Mainly supported by Retail
Agents in Malaysia
•
Scalability
Reach
Cheaper
Cost
2%
6%
• Under-served communities 1
13%
• Non-urban areas 2
79%
• Non-economical areas 3
• Under-served areas 4
1 Less
than 5 financial touch points
km radius away from town area
3 Low business activity areas
4 Less than 2,000 people with no financial access
2 10
Retail agents
Post offices
Structured agents
Co-operatives
18
Facilitate a reliable, safe and
sustainable Agent Banking
Summary of Agent Banking Guideline 2015
1
Agent Banking
Services
•
•
•
•
Conducted in identified
districts only
Real-time basis & within
business premise
Daily cash withdrawal
Prohibited services
Agent selection, conduct & monitoring: FIs develop
governance and internal control & to establish contract
with agents for effective oversight
2
Monthly reporting to BNM on transaction
statistics, agent details & police reports
National logo
FI logo
3
Implement operational requirements (e.g. IT
infrastructure) & measures to safeguard customer
protections (e.g. display of national Agent Bank
logo)
http://www.bnm.gov.my/guidelines/08_agent_banking/01_agent_banking_20150430.pdf
19
Agent Banking
Agent Banking & Sustainable Development
Supports the
Government ‘s
National Agenda
• National Blue Ocean
Strategy (Cost effectiveness,
rapid expansion, high
impact)
• Financial Inclusion
Expansion &
development
of local
communities
Reduces BSN’s
carbon
footprint
• Agents of growth in • Reduces setup
their own
of brick-andcommunities
mortar
branches
• Knowledge of IT
and banking
Perpetual
demand for
banking
services
sustains bank
growth
• Longer working
hours: 8am – 10pm
• Promote other
banking products to
customers i.e. SSP
Reach out to the underserved segments of the population (particularly in rural areas) in a more cost efficient manner through the use of nonbank retail outlets. Also act as an alternative banking channel without the need to set up any brick-and-mortar branches in urban areas. 20
 Formless (MyKad-based)
Agent Banking
Mechanics
 Automated
 Wireless GPRS
 Simplified process
 Increased coverage
GPRS Network
Customer and Agent
Deposits
Fund withdrawal
Transaction Switch /
Middleware and BSN
Host / System
Fund transfer
Opening of savings
account
Receiving
loan/financing
repayments
P.O.S
Terminal
Facilitate bill
payments
21
Cost Overview
Branch
ATM-Off
Premise
Agent Banking
Set-up Cost
(One-off)
MYR500,000
(USD125,000)
MYR45,000
(USD11,250)
MYR5,000*
(USD1,250)
Yearly Operating
Cost
MYR250,000
(USD62,500)
MYR40,000
(USD10,000)
MYR2,000
(USD500)
Costs
Agent Banking
Experience
EB growth in transaction
CAGR
49%
*Includes POS Terminal & Point of Sales Material such as flyers
Monthly operating cost:
• Fixed cost (GRPS Access Fee)
• Variable cost (Commission paid to agents, thermal
paper, marketing expenses)
Breakeven point
•
18,398,914
13,036,438
8,265,052
2013
2014
2015
450 transaction per agent per month
22
No of Agents by BSN
Transactions
RM 81.3 mil
Value
RM 5.7 bil
“
Agent Banking
Experience
BSN will have 5,000 agents by 2015”
– Prime Minister (October 2012)
”
Served: 5,533
Underserved: 1,469
Unserved: 15
*
* As of June 2016
Cash withdrawal
5%
Others
1%
Cash deposit
5%
Prepaid top-up
24%
Bill payment
65%
Others
32%
Telcos
17%
Grocery
shops
51%
Peninsular Malaysia : 5,795 (83%)
East Malaysia : 1,222 (17%)
Sub-urban /Rural: 5,283
Urban: 1,734
23
Challenges
Experience
Quality of Agents: Recruitment Guideline
Ground Support: Coordinators, State EB,
Operations Support
Close Monitoring: Business & Operations
Performance
Communication: SOPs, instructions & promotions
24
Quality of Agents: Recruitment Guideline
No.
Item
Descriptions
1
Types of business
a.
b.
c.
d.
Personal (individual / Sole Proprietorship)
Partnership
Private Limited Company (Sdn Bhd)
Public Limited Company (Berhad)
2
Business Period
a.
Operating more than 12 months
3
Location
a.
b.
c.
d.
e.
Number of population approximately 2,000 (not applicable for unserved)
The distance not less than 5km radius from BSN branches
Premise in good condition
The distance between the other agents not less than 10km radius
GPRS coverage (minimum requirement)
4
Operating Hours
a.
Daily basis (8.00am – 10.00pm)
5
Others (data
verification with third
parties)
a.
b.
c.
Business Search / Credit Reference (BRIS)
Police report
Blacklisted CCRIS
25
Ground Support: Coordinators, State Agent
Bank, Operations Support
HQ Coordinators
● Agent recruitment
and termination
(administration)
● Monitoring of
agents
performance
● Monitoring and
analysis the
suspicious
transactions
State EB Staff
● Agent selection
and interview
● Agent
appointment /
termination
● Agent supports
(marketing,
operations and
business)
Operations Support
● Agent Helpdesk
● Monitoring of
errant agents
(manipulation /
split transaction)
● Account
reconciliation
(finance)
26
Close Monitoring: Business & Operations
Performance
Identify suspicious
transactions i.e
manipulation /
split
Daily monitoring
via system
(web module)
•
Auto generated
daily report on
suspicious
transactions by
agents
•
Verify the
suspicious
transactions by
referring agent’s
transactions detail
Details
investigation
Follow up action
taken
•
Visit the suspected
errant agents
•
2nd attempt: Issuance
of 1st warning letter
•
1st attempt: Verbal
reminder and
warning
•
3rd attempt:
Suspension of agent
commission and/or
termination
27
Communication: SOPs, instructions &
promotions
EB Award
Night
EB Campaigns
Outreach
programme
28
•
•
•
Multi-devices
Enable to
support 3G
• Remittance
Micro Insurance
Agent Banking
Moving forward
New
products/
services
Negotiate
New Rate
to Billers
Technology
Enhancement
•
Utilities company i.e to
increase fee income to
RM1.00
•
Restructuring agent
commission structure
Moving
Forward
Process
Improvement
•
•
Online real time payment
i.e TM & Astro
Barcode scanner for bill
payment
Reduce
Operating
Costs
Charging
Customer
•
Bill payment
transactions via cash
29
Synergy between agent banking and
microfinancing
30
“Financial services for poor and low-income clients offered by
different types of service providers”2.
Microfinance Institutional Framework
MSMEs1
•
3%
Several
Ministries
&
Agencies i.e. Agro provides
microcredit schemes.
• Banking institutions to play a key
role in microfinance.
Micro Enterprise Fund
(MEF): RM200 million
(USD50 mil) revolving
fund by BNM3.
Micro
•
Services (80%)
Manufacturing (57%)
Agriculture (56%)
Currently offered by 10 banks.
 Bank Simpanan Nasional
(National Savings Bank) has
been mandated to provide
microfinance.
20%
77%
Development financial institutions
(DFIs) to provide sustainable
microfinance.
Microfinance
Overview
Financial institutions complement
the existing Government
sponsored programs (e.g. Amanah
Ikhtiar Malaysia, Tekun).
Financing approved: RM3.1 bil (USD
775 mil) for more than 185,000
accounts (Since inception in 2006
until end-2015) 4.
1SMEcorp.
2
World Bank affiliate, Consultative Group to Assist the Poor (CGAP).
BNM Financial Stability and Payment Systems Report 2015.
3&4
31
Mainly from lower income businesses 1,
but viable.
Capturing the underserved
market & segments
Faced difficulties 2 in obtaining
financing/loans due to:
• Lack of income evidence
• No collateral
• Insufficient documentation
Impact of not assisting them:
• Impedes growth of ME
• Socio-economic problems
perpetuating poverty cycle,
turning to loan sharks for help.
1Sales
2 Only
turnover less than M300,000 OR full time employees less than 5.
17.4 % of micro establishments relied on financial institutions for financing.
32
•
•
46 Dedicated MF Centers;
110 MF Business Relationship Officers
to specifically market and process
loans.
BSN championing
Microfinance in Malaysia
Market Share
BSN
RM472 mil
(USD 118 mil)
10 Banks,
RM458 mil
(USD 115 mil)
Since 2007, BSN has approved
a total of RM1.2 bil (USD 0.3bil)
to more than 50,000 customers
Total Industry: RM930 mil (USD 233mil) 1
(As at 31 May 2016)
1
BNM
33
Developments
2007-2010
2011
2012-2016
BSN launched
MF Program on
March 15, 2007
Target business
operated by
New Chinese
Village
Residents
Target Night
Market traders
& viable MEs
Target at all
viable
Malaysian
owned MEs
Funded by
Government
Microfinance
Experience
Microplus
product up to
RM250k
Besides provision of credit facilities, BSN also extends:
 Access and opportunity to save
 MF customers are required to maintain savings accounts
with the bank, with regular monthly deposits
 Insurance/Takaful Coverage
34
05
Issues & Challenges by
Microfinance Institution
06
Illegal Operator /
No Operating
License
04
Poor financial
management
03
Business
Viability
02
No proper
business
prospect
Irregular
Collections /
Repayment
Character
lending
01
Challenges
Experience
Issues & Challenges
Micro Entrepreneur
•
Lack of marketing skills
•
Inferior & Outdated
Technology
•
Lack of Access To
Financing
•
Inadequate Managerial &
Operational Expertise
35
MF Financial Inclusion in Context
of Current Strategic Direction
Agent
Banking
(EBB)
Microfinance
Aspiration
Existing MF
customers to
become EBB
Micro
Finance
(MF)
Synergy
Providing MF to the
appointed EBB for
business expansion
36
Microfinance success stories
Pre
Post
Masnah Jinul
Monthly sales: ↑ 376%
Employed: 2 workers
Goo Boon Tat
Monthly sales: ↑ 198%
Employed: 3 workers
37
Mandated products as part of
Financial Inclusion
38
Collaboration with Gov.
Agencies (NGOs) and
Ministries to introduce
contractual savings product
•
Part of Financial Inclusion
Framework by BNM
•
Bundled with life
micro-insurance
•
Offered by two banks:
BSN & Maybank
 Micro Savings
Long-term contractual savings
for the period of 5 years
Offers fixed interest rate +
‘Anniversary Bonus’
Registered under eKasih aged
18 years old & above with
monthly household income of
≤RM2,300 (USD575)
BSNs achievement: 55% 1 take-up rate
as of Dec 2015
1
As percentage from no of participants in road shows
39
School Deposit
Objective:
Deposit Pricing
• Mandated Role: BSN Corporate Social
Responsibility to help School collect donation
via carnival sales.
BSN Deposit Product
• Getting to know the social through education
medium that is 1Malaysia oriented.
• Savings scheme in the format of a competition
encouraging
national
primary/secondary
school student to save and participate.
BSN Involvements
54
Schools
(Apr-Nov 2015)
 Deposits
Rate
Commercial
bank*
BSN GIRO
(Individuals)
0.25% - 0.85%
-
BSN Basic Savings
0.25% - 0.95%
0.25% - 0.55%
Premium Savings
Certificate
0.25% - 0.85%
-
School Deposit
0.35% - 1.70%
-
At least
Schools in
each state
4
40
*CIMB Bank
 Other Mandated Deliverables
Micro Finance
Chinese New villages
BNM Fund (Teman Mesra)
1.5%
RM100m/
USD25m
Housing for married
youths
Loans for school buses &
taxi drivers hire purchase
RM300m/
USD75m
RM300m
Creative
industries
RM200m/
USD50m
Equity
schemes
RM50m/
USD13m
USD75m
Designed to improve opportunities & help change the lives of Malaysians
Government/Regulator
assistance
Bank internal fund
41
Embrace technology to increase
quality of services
Virtual Teller Machine
Balances workload between
high and low traffic branches
First in Malaysia
31 branches are equipped with
VTMs sharing, the expertise of 448
tellers.
Enabled with video
and audio, with
signature pads and
card identification
for secure
transactions
42
Balancing between sustainability and mandate
Retail products
Profit for bank
Support
Government
Initiatives
Mandated products
Riskier, costly
Attract
customers
Generate
return for
stakeholders
43
Continuous support from Government & Regulator is essential in
driving Financial Inclusion agenda
Source of funding
01
Government
funds/grants
i.e. New
Chinese Village
Residents
Microfinancing
Leeway by regulator
01
Basel 1
02
Lower charge to
capital i.e. Youth
Housing Scheme
44
Concluding Remark: First-mover Advantage
Competitive Advantage
in Agent Banking &
Microfinance
Single/less players in
the field a few years
back…
01 Economies of scale
02 Cost-efficient
03 Learning curve
04 Market share
Realizing the benefits,
Commercial banks start
entering the field…
45
Concluding Remark: Using Technology for
Financial Inclusion
Creates Customer
Secular (Customer Neutral)
Segmentation
Mobile penetration (total mobile users to population) 1 141%
Access Internet via phone2
Huge initial
CAPEX
Technology has always been at the core of
Financial Inclusion – it has been ‘the’ driving force
investment
Cheaper in the
1 TheStar
63%
long run
news paper Online, Dec 2015
2 Malaysian Communications and Multimedia Commission Survey (2014)
•
•
Mobile wallet
Vodafone M-Pesa
46
Concluding points
Regulator
 Favourable and flexible
policies
 Continuous efforts by the
Central Bank
Financial Institutions
 Support national agenda
 Product innovations
 Staying abreast with
market
Ensure economic
sustainability &
increase overall
stability of
financial system
47
Kameel Abdul Halim
kameel@bsn.com.my
Thank You!