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The Agent Banking Revolution: Extending Banking Reach Malaysia’s Experience

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Kamisah Abd Kadir, Deputy Director Development Finance and Enterprise Bank Negara Malaysia 12 March 2014

Seminar on Agent Banking: Expanding Access to Payment and Remittance Services Achievements and Opportunities, Brazil, March 12-14 2014

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Measures implemented to build an inclusive financial sector in Malaysia in the past 13 years

Pillar 1: Financial Service

Providers

1. National Sustainable Microfinance Framework 2. Transformation of Credit Guarantee Corporation (CGC) 3. Strengthened role of Development Financial Institutions

(DFIs)

Pillar 2: Distribution Channels

4. Guidelines on shared banking services 5. Banking services in every district and sub-district

Pillar 3: Banking Products &

Services

Pillar 4: Financial Literacy,

Advisory & Awareness

7. Guidelines for Consumer Education and Protection 8. Integrated Contact Centre (BNMLINK, TELELINK, SME

Advisory unit) 9. Credit Counselling and Management Agency (AKPK) 10. Small Debt Resolution Scheme (SDRS) 11. Financing Help Desks at Associations/Chambers via

‘Train the Trainers’

Pillar 5: Supporting Financial

Infrastructure

6. Basic banking services and products

Pillars

12. National SME Development Council 13. Central Bank Act 2009: financial inclusion as primary role 14. CCRIS (credit registry) and Credit Bureau Malaysia

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Measures

32,846

End 2000 End 2013

19,738

Take-up of deposits

Outreach

1.5 1.1

End 2000 End 2013

2

1

Take-up of loans

8,673 3,105

End 2000 End 2013

3 Increase from 2000-2013 Loans accounts per 10,000 adults

Increase from 2000-2013 Branches per 10,000 adults

Increase from 2000-2013 Deposits accounts per 10,000 adults

Key improvements

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Innovative channels

10 financial inclusion strategies

Strategic outcomes

i. Agent banking ii. Mobile banking

iii. Structured training programmes

iv. Holistic monitoring framework

v. Strengthen role of specialised DFIs in financial inclusion

vi. Flexible micro-financing

vii. Contractual micro-savings product

viii. Micro-insurance/ takaful roadmap - short, medium & long term

ix. Financial literacy via mobile LINK and partnerships

x. Leverage NGOs for capacity building programmes

A financial system that best serves all members of society, including the underserved, to

have access to and usage of quality, affordable essential financial services to satisfy their needs towards greater shared prosperity

Vision

1 Well informed and

responsible underserved

4

High Take-up Convenient accessibility

Responsible usage

High satisfaction

Desired outcomes for the underserved

Continuous monitoring & evaluation framework

Innovative products and

services 4 Effective FIs and

infrastructure 2

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Framework under the Financial Sector Blueprint (2011 – 2020) to further enhance financial inclusion

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• Belaga is a small district in Sarawak of

East Malaysia with population of above

37,000. The main economic activity is

logging

• 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.

• Accessibility to Belaga is an issue for the

banks to open a branch.

• Dependent on their heads of community or

friends to do banking on their behalf.

It all started in Belaga…

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Percentage of sub-district with a population of ≥2,000 with & without access points in Malaysia 2011

Branches and ATMs per 100,000 adults in Malaysia compared with high income countries 2009

1532

Challenges faced leading to introduction of agent banking in year 2012

Lower physical outreach compared to high income countries1, concentrating in urban area

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Total sub-districts with ≥2000 population: 838 Ave. population per sub-district: 24,000 (0 – 533,000)

Sub-district with access

points (Served mukims)

46%

398 mukims

Sub-district without

access points (Unserved mukims)

54%

449 mukims

At sub-district level, about 54% of sub-districts with ≥2,000 population in Malaysia are yet to be served2

Challenges

100.0100.0100.0100.0

67.355.353.452.652.452.3

43.542.6

36.432.531.731.2

0.00.00.00.0

32.744.746.647.447.647.7

56.557.4

63.667.568.368.8

KLLabuan

PutrajayaSabah**Selangor

JohorSarawak

PerakPerlis

N.SembilanPenang

MelakaKelantan

TerengganuPahangKedah

% of served sub-district by state

(50%)

53 Malaysia

High income countries

Branches ATMs

94

15

32

Source: 1 Financial Access Report 2010, CGAP & FICPS. 2 Mapping exercise by BNM, 2011 & Jabatan Perangkaan Malaysia (DOSM 2000)

Source: BNM

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Agent Banking: Case for change

** Sabah’s lowest admin. area is a district

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Agent Banking has high potential to enhance outreach to unserved at lower costs

Increased Outreach 1 Lower Costs 2

≈28m

≈1m 665k 500k 250k

Western Unions

Bank Branches

Post Offices

ATMs Agents

Worldwide points of presence

Source: CGAP

• 2 Malaysian FIs • Start-up cost: > 80% lower • Transaction costs: > 60 % lower

• Mexico: 25% - 50% lower

Global experience • Brazil : >160,000 agents • Mexico : >22,000 agents • Kenya : >16,000 agents • India : >15,000 agents • Malaysia : 460 agents

Cost of offering financial services through agent outlets vs. physical branches

Source: 2FIs, McKinsey (Global Financial Inclusion) 2010, CGAP

Contributes to e-Payments agenda 3

Increase # of debit cards

Increase # of terminals

Agent Banking: Case for change

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Guidelines on Agent Banking in 2012 to facilitate the implementation of agent banking in a reliable, safe and sustainable manner

Guidelines on Agent Banking outlines the minimum regulatory expectations for FIs as well as encourages cashless transaction & use of system that promotes open access

Agent banking services

• Emphasis on unserved areas • Real-time transaction & within premise only • Basic banking services - deposits, cash withdrawals, fund transfers, bill payments &

loan/financing repayments • Prohibited services – opening of bank accounts, money changing activities & loan

appraisal

• FIs retain ultimate responsibility of all agent banking risks & activities, including technology risk, agent management, security, operational risk, customer protection

• FIs must conduct Know-Your-Agent & agents must have existing business • Agents to comply with relevant legislation including secrecy provision • Agent contract, monitoring & supervision mechanism

• National agent banking logo • Dispute resolution mechanism • Database on agent for public verification • Agent banking awareness programme

Oversight & governance

Agent Selection, Conduct, Monitoring

Customer protection, awareness & education

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Agent Banking: Regulatory framework in Malaysia

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Agent banking: Key achievements to date

Agent banking enhances outreach of financial services to the underserved in a more cost-efficient manner

Served sub-districts Unserved sub-districts Unserved sub-districts Served sub-districts

46% mukims served End 2011

92.5% mukims served End 2013

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Before After

17 cash in & cash out access points per 100K adults Financial access point by type, end 2011

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460

Branches Agent banks

3,143 3,603 cash in & cash out access points nationwide

Population: 2010estimate

• Peninsular: 23.0m • Sabah: 3.3m • Sarawak: 2.6m

40 cash in & cash out access points per 100K adults Financial access point by type, end 2013

Branches Agent banks

3,2265,474 8,700 cash in &

cash out access points nationwide

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5,474 banking agents nationwide, mainly in

rural areas

From 94% (end-2012) to 99.8% (575)

↑ served State Legislative Reps

Number of Agents

Agent banking by 3 FIs

The underserved can conduct business in familiar environment

>13.9 million transactions worth >RM1.6 billion

(USD495 mil)

Transactions by Agents

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Synergy between agent banking and microfinancing

• Agent banking boosts up his almost

dying business – more new customers

• Microfinancing helps him to expand the

business

• Agent banking commisions help to pay

his microfinancing loans.

• Top performer agent in suburb Kuala

Lumpur

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… Malaysia also leveraging on mobile banking infrastructure, MyMobile to facilitate all Malaysians to access financial services 24/7

Opportunity

Types of services

Benefits

• Mobile banking can cover all sub-districts • Adoption of mobile banking has been increasing

• Available on all mobile phones • Internet connection is not required • Safe and secure

• View transaction history & balances • Fund transfers (e.g. same bank & inter-bank) • Bill payments • Credit card repayment • Airtime reload transactions • Mobile to mobile transactions

• 3 participating Fls and 3 participating Telcos • 132,275 registered users as at end-2013 • 1.5 million transactions, of which 254,237 are

financial transactions valued at RM21.3 million (USD6.5 mill)

Mobile Banking: MyMobile

127.6 246.7 367.6 574.6 675.0 898.51560.3

3793.0

2446.2

2005 2006 2007 2008 2009 2010 2011 2012 2013

No. of mobile banking subscribers (‘000) As at end

MyMobile System

132,275 users

3 Telcos (Maxis, Celcom & Digi)

Government 3 FIs (Maybank, CIMB & Public Bank) MyMobile

*500*888#

Achievements

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eSPICK

Interbank GIRO (IBG)

E-money

Debit/ATM Card

Charge Card

Credit Card

Instruments Channel

Agent Banking

Internet Banking

Branch

Mobile Banking

Financial Process Exchange

(FPX)

Shared ATM Network / IBFT

Cheque

Real-time Electronics Transfer of

Funds and Securities System (RENTAS)

Direct Debit

Domestic PIN-based

ATM/debit card

National Payment and Clearing System

The back end system of one of the participating Financial Institutions of agent banking and MyMobile platform

Mobile Payment

MyMobile platform

Retail payment system

High value payment system

FI’s back end system

ATM Bank

account

Money

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Continuous engagement with the public nationwide to create greater awareness and educate consumers

Financial talk by BNM, FI booth (account opening & other product and services) & media interview

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Who to contact What is agent banking

Brochures National Logo

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Dos and Don’ts Simple steps

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Newspaper coverage

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In the pipeline..

i. Reviewing the Guidelines to :

• Expand the scope and permissible services provided by agent banking

• Allow opening of accounts by agent at minimum risk

• Uplift the location restriction

ii. Mapping of access points at smaller area – by villages, by radius

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Key contributors to the success

i. Conducted pilot before launching the guidelines

ii. Private sector driven - FIs decide the best business model suit their business appetite

iii. Guidelines specify minimum requirements for FIs to observe consumer protection

iv. Awareness and education for the unserved are critical

v. Technology driven

vi. Simple and easy to understand, meeting the needs of the poor

vii. Continuos monitoring

viii.Clear key performance indicators and targets