CONFIDENTIAL Advancing microfinance under Malaysia s SME Financing Ecosystem

CONFIDENTIAL Advancing microfinance under Malaysia’s SME Financing Ecosystem San José, Costa Rica 30 August 2016 0 Norsuraya Kasim (norsuraya@bnm. gov. my) Development Finance and Enterprise Department Bank Negara Malaysia 0 0 CONFIDENTIAL

CONFIDENTIAL Disclaime r This document is solely for the use of a presentation at the ‘International Forum on the Granting of Microcredit, Its Impact and Regulation’ in San José, Costa Rica (29 – 31 August 2016) All information in this document shall not be circulated, copied or reproduced in whole or in part, nor publicly referred to or discussed unless with the prior written approval from Bank Negara Malaysia (BNM) or the information has been officially released by BNM to the public. The information was not prepared with the specific consideration of any particular individual or entity. Any views expressed in this document are those of the author and are not those of BNM. While every care is taken in the preparation of the information, no responsibility can be accepted by BNM for any errors and any liability for any loss or damage arising from the use of, or reliance on, the information contained in this 1 document. 1 1 CONFIDENTIAL

CONFIDENTIAL SMEs are a critical component of growth in the Malaysian economy • SMEs encompasses 97% of formal business establishments • 90% of SMEs operate in the services sectors • Micro enterprises is the largest group within SMEs (75% total establishments) Contribution of SMEs to the Economy • SMEs contribute ~ 1/3 of the country’s GDP • Cohesive effort needs to be mobilised effectively to realise SMEs’ potential as driver of economic growth • The SME Masterplan macro targets: 2 – enhance SMEs’ contribution to economy by 2020 2 2 CONFIDENTIAL

CONFIDENTIAL SMEs are defined by the NSDC based on sales turnover and number of employees SME Definition (effective 1 Jan 2014) a) Annual sales turnover: Size Manufacturing Services & other sectors Micro < RM 300, 000 (USD 75, 000) Small RM 300, 000 -

CONFIDENTIAL Bank Negara Malaysia’s involvement in SME Development • In 2001, there was heightened attention on the issue of banks not lending to SMEs. Banks maintained that for the most part, SMEs were not viable and poorly managed. • BNM conducted a survey in 2001 to assess the situation. The survey revealed that problems faced by SMEs were beyond financing: Problems faced by SMEs: Indicated assistance required by SMEs: Ranking 1. 2. 3. 4. 5. Competition from bigger players Not able to obtain loans Not able to source skilled labour Competition from new entrants Lack of Government support 1. 2. 3. 4. Tax incentives Greater access to financing Greater technological support Central body that collates and disseminates information on SMEs 5. Central training body 4 • Statistics also showed that contribution of SMEs to the economy was low. 4 4 CONFIDENTIAL

CONFIDENTIAL BNM driven the initiatives to establish a holistic Government approach to develop SMEs Initiatives Outcome Establishment of the National SME Development Council (NSDC) • A central body to coordinate • § Chaired by Prime Minister § Secretariat: BNM from 2004 to July 2008 • A centralised national § More than 17 Ministers & Agencies • § Formulate broad policies and strategies for comprehensive development of SMEs across all sectors – infrastructure, capacity building and financing § Oversees coordination of and development efforts. No duplication of programs and roles of Ministries database on SMEs. A central body to coordinate training and advisory services • Structured data collection 5 to facilitate comprehensive policies formulate ensure effectiveness in policy implementation 5 5 CONFIDENTIAL

CONFIDENTIAL SME Corp. , the dedicated Agency for SME development Coordinate programmes & policies NSDC Ministries & Agencies SMEs Formulate policy & undertake economic assessment One Referral Centre Secretariat to NSDC Chambers & Industry Associations Role of SME Corp: 6 • National SME Policy (SME Masterplan) • Coordination of SME programmes • Business development and outreach • Secretariat to NSDC 6 6 CONFIDENTIAL

CONFIDENTIAL SME performance has been impressive in last 10 years, better than large enterprises % 7 Source: Department of Statistics, Malaysia and SME Corporation Malaysia 7 7 7 CONFIDENTIAL

CONFIDENTIAL SME Masterplan identified 6 focus areas to accelerate growth of SMEs 8 Source: SME Masterplan 2012 -2020 8 8 CONFIDENTIAL

CONFIDENTIAL The Central Bank Act 2009 made inclusive financial system a primary function CBA 1958 Mandates broadly defined CBA 2009 Strategically focused Principal objects Promote monetary stability and financial stability conducive to the sustainable growth of the Malaysian economy • Issue currency and to keep reserves safeguarding the value of currency • Promote monetary stability and a Primary functions sound financial structure • Formulate and conduct monetary policy • Promote exchange rate regime consistent with • Promote the reliable, efficient and fundamentals smooth operation of national payment and settlement systems and ensuring that systems policy is directed to the advantage of Malaysia • Regulate and supervise financial institutions • Promote sound, progressive and inclusive financial system • Provide oversight over the money and foreign • Act as a banker and financial adviser to the Government • Influence the credit situation to the advantage of Malaysia 9 exchange market • Hold and manage foreign reserves of Malaysia • Issue currency • Exercise oversight over payment system 9 9 CONFIDENTIAL

CONFIDENTIAL Malaysia has a comprehensive financing support for the development of SMEs at all stages of the business life-cycle SME Corp provides advisory, training and entrepreneurial development to SMEs SME Bank, CGC, Agrobank Loans by DFIs Loans by Govt agencies Bank Rakyat, BSN, EXIM AIM, TEKUN, PUNB, MARA, PNS, SME Corp MDV Loans by Banks Equity Grants Commercial Banks Venture capitalists Small Debt Resolution Scheme Stock Exchange MTDC, CIP, MOSTI, MDec, Biotech 10 CGC Guarantee Syarikat Jaminan (PROKHAS) Seed and Start-up Growth / Expansion Companies Early Stage Companies 10 Expansion/ Large ent. Distressed Companies 10 CONFIDENTIAL

CONFIDENTIAL SMEs rely on banking institutions as the main source of financing Approval rate to SMEs remained high (%) Outstanding Financing as at end-2015 RM billion BIs 259. 7 DFIs 14. 8 Government Funds and Schemesa 5. 9 Venture Capitalb 2. 2 Factoring and Leasingb 1. 2 a b • 96. 5% of financing outstanding to SMEs are from banking institutions and DFIs As at end-2014. Excluding government funds that are channeled through FIs. As at end-2014 • Financing to SMEs comprise 46. 6 % of business financing 11 • RM 71. 9 bil (USD 18 bil) financing approved by banking institutions to 128, 900 SME accounts for 2015 (approval rate: 80. 6%) Source: Bank Negara Malaysia, SME Corp. Malaysia and Securities Commission 11 11 CONFIDENTIAL

CONFIDENTIAL The holistic SME financing ecosystem underpinned by five main pillars • Microfinance Institutional Framework • Strengthening the Development Financial Institutions • Central Credit Reference Information System (CCRIS) Financial Infrastructure • Train-the-Trainers • SME events • Media promotions • Distribution of promotional materials through local authorities Outreach & Awareness Programmes • Small Debt Resolution Scheme • Credit Counselling & Credit Management (AKPK) Debt Resolution & Management SME Financing Ecosystem • Credit Guarantee Corporation • Credit Bureau Malaysia • SME Financing Facilitation (ABM PARTNER) • Investment Account Platform Financing & Guarantee Schemes Avenues to Seek Information & Redress 12 12 • BNM’s SME Funds • CGC Guarantee Schemes • Green Technology Financing Scheme • Emergency Funds • BNMLINK, BNMTELELINK, MOBILELINK • Financing Help Desks at SME Business Associations • ABMConnect Helpdesk • Bankinginfo & SMEinfo web portals • Complaint & SME Advisory Units at FIs 12 CONFIDENTIAL

CONFIDENTIAL Skim Pembiayaan Mikro – a comprehensive, sustainable microfinance institutional framework introduced in 2006 Definition • Financing up to RM 50, 000 (~USD 12. 5 k) to micro enterprises for business purposes Key Benefits Easy Fast 2 Convenient • No collateral • Fast approval • Widely accessible • Minimum documentation • Fast disbursement • Simple procedure • Offered by 10 financial institutions with more than 2, 100 access points Accessibility of Micro Financing 13 Source: Bank Negara Malaysia 13 13 CONFIDENTIAL

CONFIDENTIAL Other related initiatives to promote Skim Pembiayaan Mikro RM 200 million Micro enterprise Fund (MEF) to facilitate access Stamp duty exemption to reduce cost of doing business • Introduced in 2008 to increase access to • Announced in National Budget 2012 by the micro financing for micro enterprises with viable business Prime Minister • The exemption order is gazetted and • Provide funding at concessionary rate to applicable for : encourage PFIs to reach out to more micro enterprises − Conventional and Islamic financing that falls under the sustainable Pembiayaan Mikro framework as approved by the National SME Development Council (NSDC) in 2006; and • FIs carry credit risk to encourage responsible credit approval and monitoring practices • As at end-2015, more than 17, 000 micro enterprises have benefitted with a total approved financing of RM 367 mil (USD 91 mil) − Instrument that is executed on or after 1 14 January 2012. 14 14 CONFIDENTIAL

CONFIDENTIAL As a result of the initiatives, the microfinance industry has expanded Microfinancing Outstanding Compound annual growth rate (CAGR): 25. 7% yoy RM 151 mil (USD 37. 8 mil) as at end-2000 RM 4. 7 bil (USD 1. 18 bil) as at end-2015 Government Schemes TEKUN Participating Financial Institutions TEKUN AIM 15 15 CONFIDENTIAL

CONFIDENTIAL Strengthened Roles of the Development Financial Institutions (DFIs) – 6 DFIs are under the purview of BNM Role of DFIs Services provided by DFIs • Mandated to develop and promote strategic • • • Financial and technical support to strategic sectors • Handholding and advisory services to clients • Deposit mobilisation, especially in rural areas (National Savings Bank) • Develop/nurture start-up companies (SME Bank) sectors To achieve social and economic goals To complement banking institutions and bridge the gaps in supplying financial products/services to the strategic sectors International Trade • EXIM Bank Agriculture • Agriculture Bank Infrastructure • Development Bank Micro Enterprises • National Savings Bank • Agriculture Bank • Bank Rakyat SMEs • SME Bank 16 16 16 CONFIDENTIAL

CONFIDENTIAL Central Credit Reference Information System (CCRIS) as the main credit database in Malaysia to reduce information asymmetry for SMEs Key Benefits: To FIs Collates positive and negative data and provide credit reports to FIs on demand, realtime • Provide credit information to: – Facilitate credit assessment – Facilitate credit risk management – Promote efficient credit processes Types of credit reports: • • Summary Credit Report – aggregate overall credit exposure of customer including financial guarantees, To BNM • Facilitate BNM for regulatory, supervision and analytical purposes Detailed Credit Report – details on loan accounts (e. g. limit, outstanding, conduct of accounts, legal action) Customer Supplementary Report – historical employment, addresses, telephone numbers To Private Credit Bureaus • Provide data for the generation of credit reports 17 Motor Vehicle Report – info on the source of financing of specific vehicles To the General Public • Inculcate good credit culture 17 17 CONFIDENTIAL

CONFIDENTIAL Credit Bureau Malaysia (CBM) provides a ‘one-stop’ access to credit information on SMEs • Create a sound credit culture and good payment behavior amongst the SMEs in the country Objective CBM Benefits to SMEs Achievements • Build, maintain and enhance track record • Facilitates financiers in faster processing of • • • Generated 2. 2 million reports since its SMEs credit applications Better insights to own credit standing Promote good repayment behaviour • 18 inception in July 2008 As at end-Feb 2015, CBM has 37 FI members and 28, 466 non-FI members CONFIDENTIAL

CONFIDENTIAL Including the establishment and continued support to CGC as a key institution in the SME financing ecosystem … CGC assisted 430, 000 SMEs have access to over RM 58 bil (USD 14. 5 bil) Evolution of CGC’s Business • Provide comfort to banks, to increase receptiveness of SME customers • Concessionary guarantee fee to keep borrowing cost low Implemented/established: • Risk-adjusted pricing • Rebates for SMEs with good track record • Portfolio guarantee/ wholesale guarantee • Expanded branch network nationwide • Implemented Direct Access Guarantee Scheme • Enhanced advisory services to SMEs • Achieve financial sustainability 19 • Expand products and services to meet evolving needs of SMEs • Balance financial sustainability with developmental role • Securitisation for SME loans • Credit Bureau Malaysia • Govt-sponsored schemes – Crisis schemes – GT financing scheme • IP financing scheme • Start-up scheme Moving forward: • Find niche areas to address financing gaps • Lower cost of financing for SMEs 19 19 CONFIDENTIAL

CONFIDENTIAL BNM’s SME funds: More than 67, 000 SME accounts approved RM 2. 8 bil (USD 0. 7 bil) still available at end-December 2015 RM million 75% Utilised 25% Available * Source: Bank Negara Malaysia Total initial allocation: RM 9. 65 billion (USD 2. 4 billion) 21 Total financing approved: RM 27. 5 billion (USD 6. 9 billion) - due to revolving nature of funds * Note: Closed for applications since 30 June 2015 21 21 CONFIDENTIAL

CONFIDENTIAL BNM SME funds to assist SMEs to obtain financing at affordable cost Fund for Food Fund for Small and Medium Industries 2 New Entrepreneurs Fund 2 Micro Enterprise Fund Bumiputera Entrepreneurs Project Fund - i Food production & agri-based projects New SMEs (7 years and below) in all sectors New Bumiputera SMEs (7 years and below) in all sectors Micro enterprises in all sectors Bumiputera entrepreneurs with Govt. contracts in services and construction sectors Allocation RM 300 m RM 6, 050 m RM 2, 300 m RM 200 m RM 300 m Financing Rate 3. 75% 4. 0%-6. 0% Determined by PFIs • Working capital • Business Target sector • Working Purpose of financing Approved RM‘m (No of accounts) • capital Business expansion 5. 0% or BFR + 1. 0% p. a. • Working capital • Contract financing 22 2, 032. 2 (11, 320) 19, 984. 4 (29, 051) 4, 566. 3 (8, 076) 22 366. 7 (17, 440) 761. 5 (1, 122) 22 CONFIDENTIAL

CONFIDENTIAL Special Relief Facility to rebuild business for SMEs affected by the recent flood • Allocation: RM 500 million • Purpose: Repairs and purchases of assets for commercial use to replace damaged assets and for working capital only. • Guarantee: 60% by BNM (via CGC) and 40% by FIs • Eligiblity: SMEs in the flood disaster areas as defined by Majlis Keselamatan Negara, Jabatan Perdana Menteri • Features: • • • Tenure up to 5 years, with 6 months grace period on principal and interest payments at 2. 25% effective rate per annum. Open from 23 January to 30 June 2015 23 Approved: 120 applications amounting to RM 17. 5 mil or 3. 5% of the allocated amount. 23 23 CONFIDENTIAL

CONFIDENTIAL Small Debt Resolution Scheme (SDRS) provides breathing space for financially-distressed SMEs • Support viable SMEs • Viable SMEs with facing financial difficulties impaired financing • Viable SMEs – Facilitate restructuring or rescheduling (R&R) of financing facilities Objective Eligibility facing difficulties with financing from multiple FIs – Provision of financing (where appropriate) • Assisted 952 SMEs • Applications submitted Mechanism to PFIs • If declined, the Small Debt Resolution Committee (SDRC) conducts an independent 24 assessment on business viability & propose: – R&R, if eligible – New financing, where necessary 24 Achievement since establishment with financing value of RM 1. 1 b • 83% approval rate • 50% able to revive business/repay debt 24 CONFIDENTIAL

CONFIDENTIAL Credit Counselling and Debt Management Agency (AKPK) educates consumer on prudent financial management • Ensure that the household sectors continue to be resilient Objective – Provide avenue for individual borrowers and potential borrowers to seek advice and assistance in managing their credit • Promote sound and robust banking system – Facilitate debt repayment efforts and minimise incidence of nonpayment due to bad debt management • Financial Education – Educational programs and materials, tips and guides for more disciplined financial management Services • Counselling and Advice on Financial Management – Provide counselling and advice on managing finances wisely from financial budgeting, money management and credit related issues 25 • Debt Management Programme – Work with borrowers to develop personalised debt repayment plans to help them repay debts and regain financial control 25 25 CONFIDENTIAL

CONFIDENTIAL Train-the-Trainers programme is being implemented to enhance financial capabilities of SMEs Objective • Strengthen FIs’ capabilities in providing quality advisory services to SMEs • Elevate SMEs' awareness on availability of various initiatives and services to facilitate greater access to financing. Key Collaborators • BNM, SME Corp, Bankers’ Association Dual Mechanism • A pool of financial institutions (FI) trainers will be created: Ø FI Trainers will train nationwide internal staff Ø FI Trainers will conduct briefings during SME road shows and financing talks conducted by SME Corp in 2016 Key Learning Outcomes of Training 26 • Understand how FIs evaluate credit; the importance of good business and financial management • Understand the role, initiatives, products/services provided by FIs, BNM, SME Corp, CGC, AKPK 26 26 CONFIDENTIAL

CONFIDENTIAL 27 27 27 CONFIDENTIAL

CONFIDENTIAL Nationwide outreach initiatives to create greater awareness on financing products and SME schemes • Bank Negara Malaysia (http: //www. bnm. gov. my) Ø LINK Ø BNMLINK (http: //www. bnm. gov. my/bnmlink/index. htm) Ø CCRIS (http: //creditbureau. bnm. gov. my/) 0 Provides advisory, complaints management, • SME Corporation Malaysia - Central point of reference for information, advisory services and capacity building for all SMEs in Malaysia http: //www. smecorp. gov. my/ • Publications – SME Annual Report, Financial Guide for SMEs, Grow Your Business • On-line Portals Ø SME Info Portal – a one stop portal on SME information and 28 0 Ø Ø resources http: //www. smeinfo. com. my Bankinginfo – offers comprehensive information on banking and finance to consumers http: //www. bankinginfo. com. my Insuranceinfo – offers comprehensive information on insurance to consumers http: //www. insuranceinfo. com. my 28 28 Slide 5 CONFIDENTIAL

CONFIDENTIAL Continuous engagement with the public nationwide to create greater awareness 29 29 29 CONFIDENTIAL

Terima kasih! Gracias!

CONFIDENTIAL Disclaime r This document is solely for the use of a presentation at the ‘International Forum on the Granting of Microcredit, Its Impact and Regulation’ in San José, Costa Rica (29 – 31 August 2016) All information in this document shall not be circulated, copied or reproduced in whole or in part, nor publicly referred to or discussed unless with the prior written approval from Bank Negara Malaysia (BNM) or the information has been officially released by BNM to the public. The information was not prepared with the specific consideration of any particular individual or entity. Any views expressed in this document are those of the author and are not those of BNM. While every care is taken in the preparation of the information, no responsibility can be accepted by BNM for any errors and any liability for any loss or damage arising from the use of, or reliance on, the information contained in this 31 document. 31 31 CONFIDENTIAL

CONFIDENTIAL Additional Information 32 CONFIDENTIAL

CONFIDENTIAL Small Debt Resolution Scheme (SDRS) 33 CONFIDENTIAL

CONFIDENTIAL SDRS provides breathing space for financially-distressed SMEs • Support viable SMEs facing • Viable SMEs with financial difficulties impaired financing – Facilitate restructuring or rescheduling (R&R) of financing facilities – Provision of financing (where appropriate) • Viable SMEs facing difficulties with financing from multiple FIs Objective Eligibility Mechanism Achievement • To stabilise business cashflow whilst SMEs implement business turnaround plans • Applications submitted to PFIs • If declined, the Small Debt Resolution Committee (SDRC) conducts an independent assessment on business viability & propose: • Assisted 946 SMEs since establishment with financing value of RM 1. 1 b • 83% approval rate • 50% able to revive business/repay debt – R&R, if eligible 34 – New financing, where necessary Note : SDRC - 9 members representing businessmen/women, entrepreneurs development, former bankers and BNM representative 34 34 CONFIDENTIAL

CONFIDENTIAL More than 80% of applications were assisted under SDRS • 83% or 946 applications or RM 1. 1 billion (USD 275, 000) were assisted for R&R • Cases that are unable to be assisted mainly due to : o Business not viable o Not eligible - business ceased operation & advanced legal stage o Incomplete submission (applications returned) 35 Status of Applications under SDRS as at December 2015 35 35 CONFIDENTIAL

CONFIDENTIAL High success rate on approved cases More than half of distressed SMEs assisted under SDRS managed to stabilise and revive their businesses Debt Settled 76% • As at Dec 2015: 54% of the SMEs assisted under SDRS either: Ø Fully settled their debt Ø Complied with R&R terms (still performing) Complied With R&R Terms 24% 36 Total cases approved as at-end Dec 2015 - 946 accounts (RM 1. 1 billion) 36 36 CONFIDENTIAL

CONFIDENTIAL The SDRS success - Provide a Win-Win Solution SMEs FIs Breathing space - without worry of banks / lawyers interference Maintain security position Reduced financial burden Continue to receive regular monthly payments Interest / profit rate locked for duration of Scheme Receive equal treatment - paid proportionately to their outstanding balance 37 Focus on what is important - their business Transparency 37 37 CONFIDENTIAL

CONFIDENTIAL Eligibility criteria for SDRS • Owner/director is not bankrupt • Legal action has not reached advanced stage e. g. winding-up or auction Malaysian • At least 51% owned company All economic sector Still in operation Eligibility Criteria Business financing only • Excluding share financing & personal consumption SME • Full time staff < 200 or annual sales < RM 50 mil 38 Impaired and nonimpaired (>1 PFIs) 38 • SMEs with impaired financing or distressed SMEs with multiple PFIs 38 CONFIDENTIAL

CONFIDENTIAL Application Process Applicant can obtain SDRS application form from: • Participating financial institutions (PFIs) • BNMLINK / BNM Regional Offices / Branch • BNM’s website: www. bnm. gov. my • SMEinfo portal: www. smeinfo. com. my 1. Submit complete SDRS application to PFIs or BNMLINK / Regional Offices / Branch 2. SDRS Secretariat of BNM shall contact applicant 3. Evaluation of Application by PFIs If application is rejected by PFIs If application is approved by PFIs 39 PFIs and borrower implement new financing terms SDRS Secretariat of BNM will undertake an independent assessment on the application 39 39 CONFIDENTIAL

CONFIDENTIAL SME Database 40 CONFIDENTIAL

CONFIDENTIAL There are several SME data collection agencies • Largest repository of data for the • Central Credit Reference Government Info System (CCRIS) • Electronic Funds Integrated System (e. FIRST) • Financial Institutions BNM (Bank Negara Malaysia) Statistical System (FISS) DOSM (Department of Statistics Malaysia) • SME Corp. coordinates, CCM SME CORP streamlines, monitors and Malaysia evaluates the progress and effectiveness of SME devt programmes implemented by Ministries and Agencies each year. • Established SME Central Incentives System (SCENIC) (Companies Commission Malaysia) 41 • Develop SME Competitiveness Rating for Enhancement (SCORE) 41 • Coordinate and consolidate the SME profile data • Conduct Economic Census: Profile on SMEs (latest 2011) • CCM has SMEs’ Company or Business Profile consist of 7 main data element as follows: - Ø Ø Ø Ø Corporate Information Summary of Share Capital Directors/ Officers Shareholders / Members Company Charges Company Financial Statement Profit and Loss Account Nature of business 41 CONFIDENTIAL

CONFIDENTIAL Central Credit Reference Information System (CCRIS) as the main credit database in Malaysia to reduce information asymmetry for SMEs Key Benefits: Collates positive and negative data and provide credit reports to FIs on demand, real-time To FIs • Provide credit information to: – Facilitate credit assessment – Facilitate credit risk management – Promote efficient credit processes Types of credit reports: • Summary Credit Report – aggregate overall credit exposure of customer including financial guarantees, • Customer Supplementary Report – historical employment, addresses, telephone numbers • Facilitate BNM for regulatory, supervision Detailed Credit Report – details on loan accounts (e. g. limit, outstanding, conduct of accounts, legal action) • To BNM • and analytical purposes To Private Credit Bureaus • Provide data for the generation of credit reports 42 Motor Vehicle Report – info on the source of financing of specific vehicles To the General Public • Inculcate good credit culture 42 42 CONFIDENTIAL

CONFIDENTIAL Credit Reporting in Malaysia … presence of both private and public credit bureaus Public Credit Registry • Non-profit and owned by Bank Negara Malaysia • Participation of licensed banking institutions is mandated by law • Collects information on credit facilities and dishonoured cheques • Provides basic credit reports to members on reciprocal basis as well as to the public • Governed by Central Bank of Malaysia Act 2009 Governance of Credit Registry’s Operations by Bank Negara Malaysia Financial Surveillance Department • Policy formulation • Business Development Statistical Services Department • Data reporting & quality management • System administration 43 • Training & education LINK* and Regional Office • Manage general inquiries and public complaints in relation to the credit registry * Refers to centralised point of contact to facilitate a rapid and effective response for members of the public in matters related to the financial sector 43 43 CONFIDENTIAL

CONFIDENTIAL Central Bank of Malaysia Act 2009 … supporting the operation of public credit registry Section 47 enables Bank Negara Malaysia: • To collect credit information (including information relating to rejection of any cheque by reason of insufficient fund in the account) • To disclose the credit information collected to: ü Financial institution for the purpose of assessing credit-worthiness of its existing and potential customers or to assess the eligibility of the customer to maintain or open a current account; ü Borrower for the purpose of verifying the accuracy of the credit information; and ü Registered credit reporting agency for the purpose of providing credit reporting or credit assessment services. • This section also protects the Central Bank against any legal action. 44 44 44 CONFIDENTIAL

CONFIDENTIAL Credit Reporting in Malaysia … presence of both private and public credit bureaus Private Credit Bureaus • • • Privately-owned and profit-oriented Mainly rely on public information as main source No access to borrowing information of banks unless consented by borrowers 7 bureaus currently operating Governed by Credit Reporting Agencies Act 2010 Regulated by Registrar Office of Credit Reporting Agencies under Ministry of Finance PCBs Services Offered 1. Credit Bureau Malaysia S/B § One stop centre for financial institutions and other credit grantors to retrieve credit information and ratings for credit evaluation purposes § Platform for SMEs to build their track record and credit standings to facilitate faster processing of their credit applications 2. CTOS S/B § Collates factual information on legal proceedings against individuals and businesses as well as other information from public sources and captured into an electronic media for easy, fast and accurate retrieval 3. Financial Information Services S/B § Registration of vehicle/equipment ownership claims to protect and safeguard the interest of all members § Prevent double financing of vehicles/equipment 45 § Provide leading information for credit evaluation and monitoring 4. 5. 6. 7. § Provide business report which includes detailed information on companies, litigation check, credit information, financial information and analysis, clientele, business operations, industry analysis and credit risk rating Basis Holding S/B Dun & Bradstreet (M) S/B MCDS Network & Services S/B RAM Credit Information S/B 45 45 CONFIDENTIAL

CONFIDENTIAL Credit Reporting Agencies Act 2010* … mainly to protect the rights of consumers Coverage Regulation of Credit Reporting Agencies (CRAs) Credit information relating to both natural persons and other entities, such as corporations, partnerships, cooperatives and other organisations • A registrar is appointed by the Minister of Finance to regulate CRAs • CRAs are required to be registered to undertake credit reporting business • The registrar also responsible for resolving complaints and disputes between credit customers and CRAs Preserving privacy • CRAs required to notify customers that information are being collected • CRAs are also required to obtain the consent of the consumers on disclosures of information to third parties Consumer rights • Access own information held by the CRAs • Shall not be charged for correcting any information that is inaccurate, incomplete or misleading Accuracy and security of information • CRAs are required to take reasonable steps to ensure that information held are accurate, complete, not misleading and up-to-date • CRAs also obligated to put in place the necessary safeguards (e. g. systems, procedures and processes) to ensure the security and safety of information 46 Enforcement information Penalties ranging between RM 50, 000 to RM 1 million or a six months to three years imprisonment or both, depending on the severity of the offence * 46 The Act was officially enforced on 15 Jan 2014. 46 CONFIDENTIAL

CONFIDENTIAL Credit Application / Account Information Flow … detailed information on borrowers and credit transactions Application Update • Name of Borrower • ID Number • Date of Birth/Registration • Marital Status • Nationality/Country of (Approved/Rejected/ Cancelled) • Approval Date • Amount Approved • Reason for Rejection FI makes decision based on CCRIS credit report and other info Credit Application • • FI Name of Applicant ID Number Date of Birth/Registration Nationality Application Ref. No. Amount Applied Application Date Operation Reporting to CCRIS: Stage 1: Credit application received Stage 2: Credit decision made, where: • Rejected, Cancelled, Withdrawn by Customer before FI Decision – FI updates status and process ends here. • Approved – FI continues to submit data 1 - 6. • Resident/Non-Resident • Corporate Status • Industrial Sector • Address • Telephone Number • Employment Details 1 • • • Account Number Approved Limit Approval Date Facility Type Purpose of Loan Financing Concept Repayment Term Interest/Rebate Rate Type of Pricing Maturity Date 2 Account Collateral Provision Impaired Loan Tagging Month in Arrears Principal Outstanding Interest/Income Outstanding • Other Charges • Individual Impairment Provision 47 • Impaired Loan Writtenback/Written-off • • Financial Institution (FI) Loan Information Borrower’s Details • Status of Application • Collateral Reference Number • Collateral Type • Collateral Value • Collateral Details 4 Legal Action Account Position Outstanding Balance Months in Arrears Installments in Arrears Amount Undrawn Account Status Loan Sold to Secondary Market under SBBA • Amount Disbursed • Amount Repaid • • Latest Legal Status • Date of Latest Legal Status Customer submits loan application to FI 6 5 47 3 47 CONFIDENTIAL

CONFIDENTIAL Relationship with Private Credit Bureau Publicly available information Other users / non-regulated entities Regulated Financial Institutions, including Development Financial Institutions 3 Provide & retrieve Info on reciprocal 1 basis Selected non-regulated lenders Information sharing (with consent) 2 Provide info (with consent) BNM Central Credit Reference Information System (CCRIS) 4 PCBs with access to CCRIS PCBs without access to CCRIS Sell expanded report and value added products and services 48 * PCB = Private Credit Bureau 48 48 CONFIDENTIAL

CONFIDENTIAL Relationship with Private Credit Bureau …as a source of credit information i. Access to credit registry’s information given based on careful consideration and is on case-to-case basis ii. For approved applications, credit bureaus are required to demonstrate sufficient measures are in place to ensure that the information will be: a. properly and accurately recorded, maintained, collated, synthesised and/or processed; b. protected against loss and/or damage; and c. protected against unauthorised access, use, modification or disclosure. iii. After all conditions are met, the credit bureau will sign an agreement with Bank Negara Malaysia which, among others, detailed the responsibilities of the credit bureau and enabling Bank Negara Malaysia to revoke access in the event of any breach of any terms in the agreement iv. Currently, there are three private credit bureau have access to credit 49 registry’s information 49 49 CONFIDENTIAL

CONFIDENTIAL BNM’s Electronic Funds Integrated System (e. FIRST) • e. FIRST is an online funds application and management system owned and maintained by BNM – system users are participating financial institutions and BNM • Purpose of e. FIRST: Ø Manages/administers end-to-end processing of loans / financings / advances, particularly BNM’s Special Funds. Ø Facilitates approval, drawdown, repayment and interest/profit computation. Ø Integrates all activities from application to settlement Ø Provides data for analysis and management reporting • Information available in e. FIRST: Ø SME’s profile Ø Details on financing application Ø Details of financing account Ø Reports e. g. financing/loan approval 50 • Information provided by e. FIRST facilitates policy formulation on SME financing 50 50 CONFIDENTIAL

CONFIDENTIAL Financial Institutions Statistical System (FISS) facilitates collection of SME data Types of SME Data What is FISS Reporting on SME financing outstanding A computerised reporting system that captures, process and analyse statistical data on SMEs Reporting on SME financing activities including applications, approval, disbursement and repayment Objectives of FISS Reporting on asset quality of SME financing • Facilitate collection of SME data in Sector systematic manner • Provides relevant, accurate and timely Purpose Location data on SMEs Loan size Business size • Support Bank Negara Malaysia in formulating policies on SMEs • Facilitate reporting on performance of SME financing Types of SME Reports 51 Financing growth Impaired financing 51 Approval rate Share of SME financing 51 CONFIDENTIAL

CONFIDENTIAL Roles of DFIs 52 CONFIDENTIAL

CONFIDENTIAL DFIs as specialised financial institutions to drive national agenda 1 To develop and promote growth of targeted strategic sectors of the economy 2 To achieve socio-economic objective 3 To complement the role of banking institutions 6 DFIs under BNM’s purview and the mandated roles Provide financing and mobilise deposit, lead fin. institution for microfinance BSN Provide financing for agricultural activities Agrobank EXIM Bank Provide financing, insurance and guarantee facilities for exports and imports of goods and service DFIs Provide loans and financing to members and non-members including cooperatives Provide Bank Rakyat 53 medium and long term Bank financing for infrastructure projects, Pembangunan maritime, capital intensive and high technology industries SME Bank Provide financing and advisory services to 53 SMEs 53 CONFIDENTIAL

CONFIDENTIAL Roles of Bank Negara Malaysia in regulating DFIs through the Development Financial Institutions Act 2002 (DFIA) ü Ensure effective contribution by DFIs to the strategic sectors & financial system ü Promote DFIs to support financing to new growth areas ü Ensure self-sustaining and effective DFIs Key features of DFIA 2002 Role of Minister & BNM Shaper, Driver and Advisor Regulator and Supervisor ü ü Enhanced Implement & administer DFIA Regulatory and supervisory framework On-site examination Continuous surveillance Ownership & Control Corporate Governance & Strategies New Govt Funds Regulatory Oversight Shariah Governance Business Activities Business conduct and consumer protection Regulatory enforcement framework 54 Amended in 2015 to further strengthening capacity and capability of DFIs to support strategic sector growth 54 54 CONFIDENTIAL