LONDON, 14 June 2004 — Active consumerism and continuous education from CEO downward are two core objectives of Bank Negara Malaysia, the central bank, for the Malaysian banking system in the current year. These objectives together with ongoing developments in prudential and supervision policies, suggest that Kuala Lumpur is in terms of building systemic financial infrastructure is way ahead of its rivals in Asia (save perhaps Singapore, on which it is fast catching up anyway) and in the OIC countries.
Whether the focus on active consumerism and its attendant support for improving access to financing for all is a mere coincidence with new Prime Minister Abdullah Badawi’s so-called ‘agro-revolution’, which inter alia focuses on poverty reduction especially among the hardcore poor, developing education, and rooting out corruption, is anybody’s guess. But the complementarity soon becomes obvious.
Here we have an ongoing reform process built on the rubrics of political legitimacy (through parliamentary representation); an institutionalized legal and regulatory framework with all its attendant enabling legislation; a strong research and development capability; a consultation process; a ratification process; implementation; and enforcement.
But above all the reform process has vision and leadership. At the level of central bank, we have the highly-respected and proactive Dr. Zeti Akhtar Aziz, named this year by the Financial Times Group as the ‘International Central Banker of the Year for 2003’.
Unlike in many other parts Muslim countries, where reform is a reluctant and piecemeal process; a reaction to either internal or external events; and very often poorly thought out and implemented, with the result that it may require continuous tweaking. But above all, the reform process has very little representative legitimacy and therefore virtually no consultation with the wider industry players and public; and is bereft of a long-term vision. In other words, it is directly correlated to the quality of political, economic, and social governance in a country.
Take for instance the recently established The International Center for Leadership in Finance (ICLIF), which was officially launched by Bank Negara toward the end of 2003 but is now in the process of establishment and operations.
The vision comes from Malaysia’s 1-year Financial Sector Master Plan (FSMP) launched in September 2001and in which, according to Bank Negara, “the financial sector has a vital role in promoting growth and economic transformation toward a more diversified economic structure.” The FSMP has three phases. The first phase (2001-2003) focused on enhancing the capability and capacity of domestic financial institutions to face the challenges of a demanding and changing economic and financial environment.
The second phase 2003-2007 focuses on the entry of qualified new domestic players in the market and consolidating the achievements of the first phase. Following the Asian financial crisis in 1998, the financial sector was now completely been restructured into 10 major financial groups, able to compete with regional and foreign rivals. During the third phase (2007-2010) the Malaysian financial sector would then be opened to qualified foreign players.
However, the financial liberalization aspect of phase three has been brought forward by three years. Bank Negara last month approved a license to Kuwaiti commercial bank, Kuwait Finance House, to set up a fully-fledged Islamic bank in Malaysia. In addition, it is evaluating the license applications of two other banks from the Middle East to set up Islamic banks in Malaysia.
One may question the selectiveness of the financial liberalization policy that is at present confined to Islamic banking. But Bank Negara has in the past promoted the globalization of Islamic banking and sees the entry of qualified foreign players as competition to the local banks.
The rationale for ICLIF comes from the recognition that the financial services sector globally is becoming more complex and competitive. As such, financial institutions have to make the necessary adjustments to maintain or lead in innovation, productivity, and competitiveness. However, in this respect the quality of human resource and leadership capability in the sector becomes crucial in defining success and performance.
Indeed, there is a critical need for CEOs and senior management to pursue continuous training, says Bank Negara, especially in strategic and leadership management in order to transform their institutions into high-performing ones, focusing both on excellence and growth, and identifying opportunities and responding rapidly to changes. None of the cult of celebrity bankers and CEOs with egos as long as their bank balances, which is becoming so prevalent in many countries. What better humbling experience for CEOs and senior managers than reminding them that even they can always learn more about financial services and about planning and managing people to create shareholder and added value.
Malaysia of course already has three financial training institutes aimed at middle managers — one for the insurance industry; one for conventional banking; and one for Islamic banking.
The implementation framework for ICLIF is methodic and immediately enabling. The Center is incorporated as a company limited by guarantee with a trust fund of 500 million Malaysian Ringgit ($132 million) whereby the income generated from the trust fund will be used to finance the operations of the Center. At a stroke the financial stability and operational independence of the Center is assured.
No need for going cup in hand begging for donations (usually with strings attached) from financial institutions and others. Unlike in the Middle East where a number of institutions have been set up over the last three years, whose mandate are confusing; whose resources are wholly adequate; whose motives are more to do with prestige than pragmatism; and whose very CEOs have to go around handing out membership application forms and to seek mandates to generate income and revenues.
The ICLIF has a Board of Directors, whose chairman is the governor of Bank Negara. It also has an advisory board comprising both prominent local and overseas members “to provide strategic direction” on training matters and the development of high quality programs. ICLIF has already developed its flagship ‘Global Leadership Development Program (GDLP)’ and has signed agreements with universities and consultants to input into its programs and activities. Participating institutions include F Drucker Graduate School of Management — Claremont Graduate University; Marshall School of Business, University of Southern California; Stanford Graduate School of Business; and Tower Perrins.
The added value of the ICLIF is that it is not aimed at Malaysian CEOs and senior management only. Bank Negara sees this as ICLIF developing into a regional center for excellence for leadership training in finance.
Bank Negara sees promoting active consumerism as a vital aspect in the transition toward greater market orientation. Consumers also can be an important force to drive the performance and efficiency of banking institutions. Promoting consumer education and awareness is well established in Malaysia.
To the point that it is not unusual for the prime minister and for the Bank Negara governor to team up to lead consumer banking or insurance, or capital markets awareness weeks. These weeks are aimed at the ordinary public where the senior politicians and technocrats actually participate in seminars, meetings and promotions.
In this respect Bank Negara also launched a highly popular online Consumer Education Program called BankingInfo, which at end 2003 has had 6.4 million hits; and has published and freely circulated 18 booklets on financial services to the public. In addition the central bank is finalizing new product transparency and disclosure rules to provide clear and fair information and the risks and liabilities of financial products and services.
More importantly, to reduce the cost of information search by consumers, Bank Negara is also developing ‘comparative tables’ on the yield and cost of financial products and services offered by the various banks.
This is effectively a ‘one-stop reference center for information on financial products’ which not even most of the industrialized countries has in place. In the UK, for instance, the government is only now introducing new standard rules to force banks issuing credit cards to publish the real APRs (annual interest rates) in simple and clear language, so that customers can compare rates on a standard and level playing field basis.
While Malaysia has some of the best consumer protection and awareness measures in place or pending especially for the financial services sector, there is still room for improvement.
Almost two decades after the collapse of BCCI for instance, and later Barings et al, Bank Negara is only now working on a deposit insurance system, which it hopes to finalize during 2004. One would have thought that this should have been a priority consumer protection measure, and could perhaps have saved the expenditure on some aspects of Danaharta and Danamodal, the two institutions set up to offset the worst impact of the Asian financial crisis and which played a major role in the restructuring the financial and corporate debt sectors in Malaysia.