2. INTRODUCTION
• The key players within this segment of the financial system are pension
and provident funds, insurance companies and development financial
institutions.
• Non-bank financial intermediaries (NBFIs) can be broadly classified into
five groups of institutions, namely:
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Development Financial Intermediaries
Saving Institutions
Employees Provident And Pension Funds,
Insurance Companies (Including Takaful),
Other Financial Intermediaries
• Factoring Companies
• Leasing companies
• Unit trusts
• Cagamas
• Credit Institutions,
• Credit Assurance Companies
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4. • The main objectives of development financial institutions
(DFIs) are to promote development programs in specific
economic sectors such as agriculture, industry, international
trade, small medium industries, with specific institutions set
up accordingly.
• DFIs generally specialize in the provision of medium and long
term financing of projects that may carry higher credit or
market risk.
• It is predicted that in the next decade, DFIs will continue to
progress and assume a more significant role in pursuing the
Government policy goals for strategic, social and economic
development.
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5. 1. Provide a range of loan products, from short-term to longterm financing in the form of term loans, guarantees,
revolving credit and contract financing among others.
2. Acting as issuing house for public share issues, and the
provision of guarantees for loans
3. Help in the identification of new projects, participate in their
promotion, and where appropriate
4. Provide supplementary financial, technical and managerial
advice.
5. Provide technical assistance and help provide a platform for
networking and promotion for their clients.
* Note: The development finance institutions
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complement those of other financial institutions
6. • Specialize in medium and long-term financing as well as supply of
financial services not normally provided by the commercial banks
and finance companies.
• Commercial banks traditionally focus their business on only shortterm lending to finance working capital. Their medium to long-term
loans, wherever given, are generally extended to larger and more
established enterprises with high credit standing.
• Further, commercial banks are not equipped with the expertise to
appraise projects involving complex industrial and agricultural
technology.
• To overcome the gap in the supply of financial services, and as a
part of a development strategy, the government has established
specialized DFIs.
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7. Bank Pembangunan & Infrastruktur Malaysia Berhad
• The main activity to be the premier financial institution in providing financial facilities to
Bumiputeras in the manufacturing sector, services-related industries in the manufacturing sector
and also financing the country’s main infrastructure projects.
Malaysian Industrial Development Finance (MIDF)
• MIDF was set up in 1960 and is a semi-government institution providing medium and longterm loans to manufacturing industries in Malaysia.
• promotes the development of the industrial sector in Malaysia through the provision of
financing for manufacturing-based and services-based small and medium enterprises.
• The division’s financing products which are generally for the medium-to-long term, include
project, machinery, factory mortgage and working capital term loans; industrial higher
purchase and leasing facilities to finance acquisition of machinery and equipment as well as
revolving credit and factoring facilities for working capital purposes.
* Note: The development finance institutions
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complement those of other financial institutions
8. •
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Malaysian Industrial Development Finance (MIDF)
Bank Pembangunan & Infrastruktur Malaysia Berhad
formely known as Bank Pembangunan Malaysia
Bank Industri Malaysia Berhad
Bank Pertanian Malaysia formely known as Agro
Bank
EXIM Bank
SME Bank
Borneo Development Corporation
Sabah Development Bank
Sabah Credit Corporation
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10. • SIs are also complement the commercial
banks and finance companies as the major
deposit-taking institutions.
• It promote and mobilize savings, especially
among the middle and lower-income groups
in the rural areas not adequately served by
the commercial banks and finance companies
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11. • Examples:
– Bank Simpanan Nasional
– Bank Rakyat
– Tabung Haji
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13. • Tabung Haji or Lembaga Tabung Haji is the
Malaysian Pilgrim Management and Fund Board. It was
formerly known as Lembaga Urusan dan Tabung Haji (LUTH).
• The main function of Tabung Haji is to administer and
entirely manage of Malaysian to go for Hajj.
• Tabung Haji also will facilitates savings for the pilgrimage to go
to Makkah through investment in Shariah-compliant vehicles.
• Since the investment return is considerably good, some of
Malaysian use it as an investment vehicles. Depositors are
also allow withdraw part of their EPF saving to be deposit into
their Tabung Haji account.
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15. • PPFs are 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 comprise the Employees
Provident Fund (EPF) and other approved
private and pension funds
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16. •The PPFs serve as important mobilizer of longterm savings in the economy for rechanneling
into both the public and private sectors to
finance long-term investment
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17. • Several forms of provident and pension funds
operate in Malaysia, such as health and medical
schemes, compulsory workmen compensation
insurance, public provident and pension funds
as well as private provident and pension
schemes.
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18. •
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Employees Provident Fund (EPF),
Social Security Organisation (SOCSO),
Armed Forces Fund,
Pensions Trust Fund
Teachers Provident Fund
Other approved private provident and pension
funds.
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19. • 23 per cent in Employees Provident Fund
contributions from employers (12 per cent) and
employees (11 per cent)
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21. •Insurance business is a financial service whereby policy holders are
given financial protection against loss of property, income or life, for
a premium.
•Insurance companies have to spread their risks over the insured
community and take calculated risks to be able to cover for possible
claims
•The insurance companies comprise general and life insurance
businesses as well as professional reinsurers and insurance
intermediaries, such as insurance brokers and adjustors.
•In addition, the Takaful industry or Islamic insurance has also been
established to operate alongside conventional insurance businesses
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24. FACTORING COMPANIES
• Factoring’s flexibility and effectiveness as a financing instrument is
increasingly accepted by the Malaysian business community at large
and is seen as an alternative to traditional banking facilities.
– A simple financing tool which can be applied as long as there is a creation of
debt.
– An alternative source of financing as well as an improved means of working
capital management.
• Today, there are less than 30 factoring companies in Malaysia and almost all of
them are owned by financial institutions. The factoring market can be segmented
into 2 main sectors, namely :1. The private sector (mainly the SMI market, factoring traditional market)
2. The public sector (government and government owned companies)
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25. FACTORING COMPANIES
• Factoring is simply a sales and purchase transaction between
a factor (the factoring company) and its client.
• The factor would not only purchase its client’s trade
receivables but gain ownership of the debt as well, thus
allowing the factor to collect payments from the client’s
customers.
• DEBT COLLECTION AGENCY
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26. FACTORING COMPANIES
• The factor gains ownership of its client’s trade debts and thus
becomes the new owner of the said debts.
• The client’s customers would then become the debtors of the
factor and these debtors would be required to pay the factor
directly to discharge their debts.
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27. FACTORING COMPANIES
– By selling goods or services on credit, a
businessman will basically encounter 3 problems,
which are :• Working capital substantially locked up in trade
receivables.
• A sales ledger has to be maintained so that there is an
accurate record of debts owed by each customer.
• Customers have to be followed-up and monitored to
ensure collections are made on due dates.
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28. FACTORING COMPANIES
• How its benefits the users?
– Allows a growing company meet its improving sales demand
– Enable the client to obtain cash and quantity discounts from
suppliers as well as eliminating expensive prompt payment
discounts to customers by still selling to them on credit.
– The client would be released of many administrative burdens as
well as enjoy significant savings in personnel, equipments,
stationeries, postage and telecommunication expenses, among
others due to day-to-day running of the sales ledger, credit
management and collection of outstanding book debts.
– All this add up to better profitability for the company.
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29. FACTORING COMPANIES
• More than 200,000 businesses are currently using
factoring to settle trade transactions with some ten
million customers worldwide.
• All these companies are obtaining the benefits of
factoring i.e. consistent cash flow, lower
administration costs, reduced credit risks, more time
for core activities.
• These advantages are especially important for the
small and medium-sized businesses.
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30. FACTORING COMPANIES
• This flexible method of managing trade debts
enables companies to obtain cash for their domestic
and international accounts receivables by selling
them to a ‘factor’.
• There are now more than 700 factoring companies
many of which offer international or cross-border
factoring services as well as domestic. Most are
separately incorporated companies, often owned by
well-known international banks and other major
financial or industrial organizations.
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32. •
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Leasing is a process by which a firm can obtain the use of a certain fixed assets for
which it must pay a series of contractual, periodic, tax deductible payments.
The lessee is the receiver of the services or the assets under the lease contract and
the lessor is the owner of the assets.
The relationship between the tenant and the landlord is called a tenancy, and can
be for a fixed or an indefinite period of time (called the term of the lease).
The consideration for the lease is called rent.
Leasing is defined as a written contract entered into between a leasing company
(called "the Lessor") on the one part and the User of the equipment (called "the
Lessee") on the other part whereby the Lessee agrees to pay the Lessor a
specified sum of rentals over an obligatory period of time in consideration for the
use of capital equipment owned by the Lessor without the Lessee having to
purchase or own the equipment.
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33. Advantages
For businesses, leasing property may have significant financial benefits:
• Leasing is less capital-intensive than purchasing, so if a business has constraints on
its capital, it can grow more rapidly by leasing property than it could by purchasing
the property outright.
• Capital assets may fluctuate in value. Leasing shifts risks to the lessor, but if the
property market has shown steady growth over time, a business that depends on
leased property is sacrificing capital gains.
• Leasing may provide more flexibility to a business which expects to grow or move
in the relatively short term, because a lessee is not usually obliged to renew a
lease at the end of its term.
• In some cases a lease may be the only practical option; such as for a small business
that wishes to locate in a large office building within tight locational parameters.
• Depreciation of capital assets has different tax and financial reporting treatment
from ordinary business expenses. Lease payments are considered expenses, which
can be set off against revenue when calculating taxable profit at the end of the
relevant tax accounting period.
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34. Disadvantages
For businesses, leasing property may have significant drawbacks:
• A net lease may shift some or all of the maintenance costs onto the tenant.
• If circumstances dictate that a business must change its operations significantly, it
may be expensive or otherwise difficult to terminate a lease before the end of the
term. In some cases, a business may be able to sublet property no longer required,
but this may not recoup the costs of the original lease, and, in any event, usually
requires the consent of the original lessor. Tactical legal considerations usually
make it expedient for lessees to default on their leases. The loss of book value is
small and any litigation can usually be settled on advantageous terms. This is an
improvement on the position for those companies owning their own property.
Although it can be easier for a business to sell property if it has the time, forced
sales frequently realise lower prices and can seriously affect book value.
• If the business is successful, lessors may demand higher rental payments when
leases come up for renewal. If the value of the business is tied to the use of that
particular property, the lessor has a significant advantage over the lessee in
negotiations.
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35. Why choose leasing?
• As an additional source of equipment financing, leasing allows conversation of
working capital that can then be channeled to other productive business uses.
•
Lease rentals are tax deductible.
•
Fixed rental payments assist in budgeting and ease cash flow.
• Unlike an overdraft or revolving credit facility, a lease in non-cancelable once it has
been executed.
• Hedges against inflation as rental payments are fixed and made out of future
earnings.
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Simplified documentation.
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Lease period can be tailored to match the practical useful life of the equipment.
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Up to 100% financing for qualified applicant.
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36. What equipment can be leased?
Virtually any movable asset can be leased. However, for easy reference the main items
of equipment for leasing are categorized as follows:•
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Computers and IT-related
Office Equipment
Industrial and Manufacturing Equipment
Commercial and Private Vehicles
Construction and Heavy Equipment
Medical Equipment
Material Handling Equipment
Others - garage equipment, photography equipment etc.
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37. Leasing VS Hire Purchase??
The lessor is the owner of leased equipment and the lessee rents the
equipment to use by paying the lessor a fixed monthly rental. Ownership
stays with the lessor.
In hire purchase, the hirer services installment payment for and is the
beneficial owner of the equipment financed. Title to the equipment will
pass to the hirer once installment payment is concluded.
Example:
ORIX Leasing Malaysia Berhad
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38. • Cagamas Berhad, the National Mortgage Corporation and leading
securitisation house, was established in 1986 to promote the secondary
mortgage market in Malaysia.
• Cagamas Berhad has, through the years, evolved and diversified its
business model from that of a national mortgage corporation seeking to
aid Malaysians with affordable housing, to becoming a leader in
securitisation.
• It issues debt securities to finance the purchase of housing loans and
other consumer receivables from financial institutions and non-financial
institutions.
• The provision of liquidity at a reasonable cost to the primary lenders of
housing loans encourages further financing of houses at an affordable
cost.
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39. • The Cagamas Berhad model is well regarded by the World Bank as the
most successful secondary mortgage liquidity facility.
• Cagamas Berhad is the leading issuer of debt instruments, second only to
the Government of Malaysia, the largest issuer of AAA debt securities as
well as one of the top Sukuk issuers in the world.
• Cagamas Berhad’s 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.
• Website: http://www.cagamas.com.my/
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40. • To promote home ownership among Malaysians, and to overcome the
difficulty faced by young adults to own a house, the Government has
intorduced Skim Rumah Pertamaku through Cagamas Berhad which will
provide a guarantee on down payment of 10% for houses below
RM220,000.
• The scheme is for first-time house buyers with monthly household income
of less than RM3,000. It is aimed at young adults who have just joined the
workforce.
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41. • Unit Trust is a collective investment scheme that pools the savings of a large
number of investors. The money collected is invested by the fund manager in
different types of stocks, bonds, or other securities in various proportions
depending upon the objective of the fund.
• The income earned through these investments and the capital appreciation
realized by the scheme, after deducting the trading costs and expenses of
managing and administering the fund are paid out to the unit holders in
proportion to the number of units owned by them.
• Most of the unit trust funds in Malaysia are open-ended funds (the fund sells as
many units as you and other investors want to buy and buys as many units you
want to sell).
• This makes unit trust funds very liquid investments – though the price at which
you sell may be less than your purchase price if the value of the fund has
dropped.
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42. • You can make an initial investment with as little as RM1,000 and
buy additional units when you have more money or invest a fixed
amount on a regular monthly schedule via a bank account.
• Thus unit trust is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified,
professionally managed portfolio.
• Example:
– Public Mutual Fund
– Ammutual
– Amanah Saham BSN
– Alliances Investment Management
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43. • The Credit Guarantee Corporation Malaysia Berhad was
incorporated on July 5, 1972 with the main objective of
assisting small enterprises to have ready access to credit
from the commercial banks.
• The Corporation, which is jointly owned by the Central Bank
and the commercial banks, Iaunched its credit guarantee
scheme on January 2, 1973 to provide guarantee cover to the
commercial banks for designated loans extended to small
scale enterprises in the agricultural, commercial and
industrial sectors of the economy.
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44. • This guarantee cover operates automatically once credit
facilities under the scheme are provided by the commercial
banks and can be invoked as and when the loans extended
become nonrecoverable.
• Under the scheme, the commercial banks are required to pay
the Corporation a guarantee fee of 0.5 per cent per annum
on the loans outstanding.
• ln return, the Corporation covers 60 per cent of the amount
of loans in default. The maximum limits on credit made
available under the scheme is $200,000 for loans to the
bumiputera community and S100,000 to other borrowers,
while the maximum rate of interest chargeable on such loans
is 8.5 per cent per annum.
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