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In Malaysia, the banking system, with its extensive branch network and increasingly flexible
financing packages, is the largest provider of household credit in Malaysia, accounting for 84%
of total household debt as at end-2014. Other than bank system, Treasury Housing Loans
Division, Development Financial Institutions, and insurance companies are also providing
household debt in Malaysia. On the other hand, majority of the Malaysian utilize this debt either
to buy/build property or motor vehicles, however, others use this for personal use, securities, or
credit
cards.
In the same way, mortgage to GDP value for Malaysians was 32%, while it is 44% for Singapore,
20% for China, 17% for Thailand, and only 2% for Indonesia (IMF, 2013).
goods, or securities. Banking institutions in Malaysia offer two types of mortgage loans, namely,
conventional and Islamic. Conventional loans account for 90% of mortgages. Banks typically
offer plain-vanilla mortgages at fixed or variable interest rates or a combination of the two.
Approximately 83% of residential mortgages are variable rate mortgages, with adjustable rates
pegged to the base lending rate (BLR) of individual institutions. In an increasingly competitive
environment, banks also offer mortgage packages with repayment flexibility, such as graduated
repayment schemes (lower initial instalment payments that increase gradually over time) and
loans with longer maturities.
The products offered under Shariah-based Islamic house financing generally have the same
characteristics as conventional mortgages but are based on the concept of Bai Bithaman Ajil
(BBA).3 Islamic mortgages carry mainly fixed interest rates. However, banking institutions have
begun to offer variable rate Islamic mortgages following a review of the BBAs variable rate
financing mechanism conducted in November 2004 to promote efficiency in the pricing of this
mode of financing.
Mobilizing Saving for Capital Formation
The commercial banks help in mobilizing savings through network of branch banking. People in
developing countries have low incomes but the banks induce them to save by introducing variety
of deposit schemes to suit the needs of individual depositors. They also mobilize idle savings of
the few rich. By mobilizing savings, the banks channelize them into productive investments.
Thus they help in the capital formation of a developing country.
Financing Industry
The commercial banks finance the industrial sector in a number of ways. They provide shortterm, medium-term and long-term loans to industry. In India they provide short-term loans.
Income of the Latin American countries like Guatemala, they advance medium-term loans for
one to three years. But in Korea, the commercial banks also advance long-term loans to industry.
Microfinance Malaysia
Repayment
50 weeks to 100
weeks
50 to 150 weeks
150 weeks
50 weeks to 100
weeks
National TEKUN
National TEKUN formerly known as the National TEKUN Foundation is an agency under the
Ministry of Entrepreneur and Cooperative Development, which was established on 9 November
1998. The aim of the establishment of the National TEKUN is to provide financing facilities to
Bumiputera easy and fast to start and develop their business. National TEKUN now under the
Ministry of Agriculture and Agro-Based Industry
Malaysian microfinance institutions (AIM, YUM, TEKUN) have different types of lending
systems and provide services to a different strata of people. AIM and YUM offer loans to poor
and hard-core poor women members, whereas TEKUN gives loans to both poor and not-so-poor
men and women borrowers. AIM uses a group lending scheme, whereas TEKUN and YUM use
an individual lending scheme.
AIM and TEKUN provide services all over Malaysia, while YUM operates only in Sabah state.
In terms of repayment rates, the three Malaysian microfinance institutions have dissimilar
degress of success. In 2008 for example, AIM achieved a commendable repayment rate of
98.98% (AIM, 2009), YUM achieved 90.72% (YUM, 2009) while TEKUN only achieved a loan
repayment rate of 85.0% (Tekun, 2009).
In general, microfinance institutions can be divided into three types: group lending, village
banking (a bank managed and operated by the village members), and individual lending(standard
bilateral lending contracts).
Table 1: Comparison of Malaysian microfinance institutions, Grameen Bank and the BPR
system
Characteristic
AIM
TEKUN
YUM
Target borrower
Female only
Female only
Service outreach
Sabah only
Loan eligibility
Lending design
Group lending
Individual lending
Individual lending
Loan size
Min: RM1,000
Max: RM20,000
Min: RM500
Max: RM50,000
Min: RM100
Max: RM20,000
Loan instalment
Weekly
Weekly
Grace periods
Management
charge
10%
4%
Compulsory
savings
5% from annual
repayment
Table 2: Comparison of Malaysian microfinance institutions, Grameen Bank and the BPR
system
Malaysian
Microfinance
Institutions
(AIM, TEKUN YUM)
Microfinance
institute
Microfinance
institute Bank
Grameen BankBangladesh
Perkreditan
Rakyat (BPRIndonesia)
Type of institution
Source of operation
Subsidised
Unsubsidised
(i) Management fees
(i) Interest rates
(ii) Government grants and(ii) Savings
soft loans
Unsubsidised
(i) Interest rates
(ii) Savings
(iii)
Investment
from borrower
and local people
Individual lending
Lending design
AIM
: Group
lending
TEKUN: Individual
lending
YUM : Individual
lending
Group lending
Product offered
Microcredit
Microcredit
Microcredit
Micro-saving
Micro-saving
Micro-insurance
Pension fund
Lending contracts
(i) Interest rate
Different on each
loan schemes
Different on each
loan schemes
Flexible according to
borrowers business
revenue cycle.
Flexible according to
borrowers business
revenue cycle.
According to
According to
TEKUN: Weekly
mostly to small
business activity and
monthly/seasonally to
agricultural businesses
AIM
: 1 week
YUM : 2 weeks
harvesting cycle
TEKUN : According to
harvesting cycle.
harvesting cycle