Financial Blueprint 2022-2026 Fsb3 - en - Book - Lect 1

Contents
01 Introduction
02 Foreword by the Minister of Finance
03 Message from the Governor
04 Executive summary
08 Malaysia’s Financial Development Context

10 Key trends and developments
What success looks like in 2026
20 Our regulatory focus for financial development

Box Article:
Futureproofing the financial sector workforce
Box Article:
Medium-term priorities for the prudential framework and anti-money laundering and
countering financing of terrorism (AML/CFT)
36 Strategic Thrusts
38 Fund Malaysia’s economic transformation
52 Elevate the financial well-being of households and businesses
68 Advance digitalisation of the financial sector
Box Article:
Digital currencies: A new frontier
90 Position the financial system to facilitate an orderly transition to a

greener economy
102 Advance value-based finance through Islamic finance leadership
Box Article:
Social finance as an enabler of social development in Malaysia
118 References
118 Acronyms and abbreviations
Introduction
02 Foreword by the Minister of Finance
03 Message from the Governor
04 Executive Summary
FINANCIAL SECTOR BLUEPRINT 2022-2026 1

2 FINANCIAL SECTOR BLUEPRINT 2022-2026
Foreword by
the Minister of Finance
Malaysia is at an inflection point. As we exit and recover from the COVID-19 pandemic, it is hard to look
back and ignore the scars it has left on the lives and livelihoods of many. Yet, it is important for us to look
forward and not lose sight as to what is ahead of us, as we continue to push forward towards becoming a
high value-added, high-income nation.
The pandemic has accelerated the digital revolution, which has profoundly changed the way we work,
play and interact with each other. Meanwhile, the implications of climate change, biodiversity loss, and
demographic change are no longer academic, but real and pressing. While these shifts pose new
risks – especially to the most vulnerable in our society – they also present opportunities to build back better
and transform the country’s development trajectory.
In this regard, the launch of the Financial Sector Blueprint 2022-2026 is timely. In realising the nation’s
aspirations, the financial sector has always played an important role – be it supporting families to grow and
protect their wealth, or helping businesses venture into new territories. In the next five years, the strategies
expressed in this Blueprint will be critical for the financial sector to navigate the oncoming challenges
and capture new opportunities. To that end, I call upon the financial sector to continue to be the catalyst
for reform, drive sustainability and contribute to our collective aspiration of a “Prosperous, Inclusive and
Sustainable Malaysia”.
With this, allow me to express my congratulations and appreciation to everyone involved in formulating the
Blueprint, particularly Bank Negara Malaysia.
YB Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz

24 January 2022
Message from
the Governor
Through the years, the financial sector has grown and evolved to help improve the lives and livelihoods of
many in Malaysia. While the financial sector has come a long way, we have not stopped thinking about how
finance can be further propelled to more effectively serve the economy, and in particular, to help support the
nation in transitioning to its next stage of development.
In the world of finance, new applications of technology, broader shifts to digital channels and the
emergence of new business models have opened up exciting possibilities for better financial services. At
the same time, these developments raise fundamental questions about finance itself and how it should
be regulated. Similarly, demographic shifts in Malaysia would require fresh ideas to facilitate savings,
investments, and effective social safety nets for a soon-ageing population, even as other persistent
socioeconomic gaps remain. The economic effects of climate change are also beginning to manifest. Along
with this, there has been a growing appreciation for the risks to the financial sector, as well as the potential
role of finance in the transition towards a greener, more climate-resilient economy.
Further shaping the path ahead for the financial sector is the pandemic. We are reminded that the health
and fortunes of the financial sector are closely intertwined with the wider economy, as well as the natural
environment. During the pandemic, the financial sector played a key role in supporting millions of Malaysian
individuals and businesses during the lockdowns, as well as in helping jumpstart the economy as it
reopened. This has been possible due to the resilience of the financial system, underpinned by the prudent
management and build-up of buffers by financial institutions over the years.
As the nation navigates the extraordinarily uncertain times ahead, my hope is that the financial sector will
continue to serve the Malaysian economy from a position of strength. This Blueprint sets out our vision
for the next steps for that journey, alongside financial sector strategies to advance desired outcomes from
2022 to 2026. Beyond supporting the economic recovery, the financial sector will play a key role in helping
Malaysia make the most out of this unique moment in history to realise a more dynamic, inclusive and
sustainable development path.
Developing this Blueprint was no small task. I would like to express my heartfelt gratitude to all who worked
to grapple with the big questions explored here. Special thanks goes to those from outside the Bank, whose
suggestions and insights have been crucial in informing our strategies.
Nor Shamsiah Yunus

24 January 2022

Executive summary
Overview of the Blueprint
Key megatrends shaping the landscape ahead
Economic conditions Demographics

Uneven global economic Risks of financial exclusion
recovery, alongside other amid ageing population and
uncertainties (e.g. virus path, other persistent gaps (e.g.
global supply chain shifts) socioeconomic disparities,
financial literacy)
Technology Climate and environment

Promise of better financial Need for a just and orderly
services but with new regulatory transition to greener, more
challenges amid shorter climate-resilient economy and
innovation cycles, new skillsets financial sector
required and blurred boundaries
Desired outcomes and targets for 2026

Three broad themes Key targets and milestones1
Finance for all Narrowing of gap between Malaysia’s OECD/
s
s Diverse choices for customers, INFE2 financial literacy scores and the
including ‘digital first’ solutions average score of OECD members
s Strengthened financial safety
Increase in e-payment per capita at CAGR3 of
s
nets
higher than 15%
s Confident and capable financial
consumers Insurance/takaful penetration rate of 4.8-5.0%
s
(as % of GDP4)
Finance for transformation Doubling of number of individuals subscribed to
s
s Growth in alternative finance microinsurance/microtakaful
s Deeper global integration, with
continued leadership as an Enactment of consumer credit law and
s
international gateway for Islamic oversight body
finance Single licensing regime for financial advisors
s
s Vibrant and dynamic financial and financial planners
landscape
Steady growth in alternative finance
s
channelled to new, innovative enterprises
Finance for sustainability
Faster, cheaper, more accessible cross-border
s
s Wider adoption of value-based
payments
intermediation (VBI) to serve
the economy, community and More than 50% of new financing is for green
s
environment and transitioning activities
s Steady progress in greening Steady growth in VBI-aligned assets
s
finance and financing green
1
Selected areas, not representative of the Blueprint as a whole
2
OECD International Network on Financial Education
3
Compounded annual growth rate
4
Gross domestic product
Executive summary
Our regulatory focus for financial development
Foster market dynamism while supporting sustainable development

objectives …
s Address undue barriers to market entry, while ensuring orderly exit

s Promote ‘co-opetition’ for critical ecosystem enablers
s Strengthen conditions for market discipline, focusing on more empowered consumers
s Build on VBI to advance greater inclusion, climate resilience and environmental
sustainability
… anchored on monetary and stability mandates
s Continued monetary policy efficacy amid changing landscape

s Safeguard system-wide resilience and financial integrity
Five strategic thrusts for 2022-2026
a. Sustain a strong economic recovery

e.g. supportive credit guarantee ecosystem, higher usage of
forward-looking and alternative data, stronger countercyclical
1 roles of DFIs5
b. Facilitate transformation to a high-income nation

e.g. supportive regulatory and taxation framework for alternative
finance, stronger regulatory collaboration to both develop and
oversee risks from non-debt finance ecosystem
Fund Malaysia’s
economic c. Ensure post-pandemic resilience of financial
transformation intermediation role
e.g. increased collateralised transactions and developed
derivatives markets for more vibrant onshore financial market,
greater usage of insurance and takaful to support financing to
firms, especially to high-risk industries
5
Development financial institutions

a. Enhance financial capability and access, as well as effective

usage of financial services towards greater financial inclusion
e.g. financial education initiatives and impact monitoring through
2 FEN6, strengthened role of agent banks and Mobile Banks (Bank
Bergerak), wider adoption of financial inclusion KPI7 disclosures
b. Strengthen protection for households and businesses to build

financial resilience
e.g. public-private partnerships for risk protection against
Elevate the financial high-risk large-scale perils, microinsurance and microtakaful
well-being of development, further liberalisation of motor and fire tariffs,
households and sustainable MHIT8 cover
businesses
c. Shape a financial system that upholds fair and responsible
dealings with financial consumers
e.g. enhanced professionalism and incentive frameworks of
intermediaries, guidance on conduct risk identification and ethical
use of technology, consumer protection reforms (e.g. CCA and
CCOB9, single licensing framework for financial advisors and
financial planners)
6
Financial Education Network
7
Key performance indicators
8
Medical and health insurance/takaful
9
Consumer Credit Act and Consumer Credit Oversight Board
a. Futureproof key digital infrastructures

e.g. CBDC10 proof-of-concepts, non-bank access to RENTAS11,
high-impact open data use cases, shared infrastructures for fully
3 digitalised motor claims
b. Support a vibrant digital financial services landscape

e.g. simplified tracks for Regulatory Sandbox, licensing of digital
insurers/takaful operators, digital payments, enhanced regulatory
guidance for critical digital enablers such as cloud and AI/ML12
Advance
digitalisation of the c. Strengthen cyber security readiness and responsiveness
financial sector e.g. intensified focus on third party service providers, sharing of
actionable cyber security intelligence through cyber contagion
maps, standards for cyber security and cyber resilience
terminology, cyber security training and certification
d. Support greater use of technology for regulation and

supervision
e.g. greater adoption of technology for regulation and supervision,
reforms to the Bank’s data gathering infrastructure and methods
10
Central Bank Digital Currencies
11
Real-Time Electronic Transfer of Funds and Securities System
12
Artificial intelligence/machine learning
Executive summary
a. Integrate climate-related and environmental risks in

prudential regulation and supervision
e.g. effective implementation of taxonomy, greater alignment
4 with VBIAF13 and its sectoral guides, strengthened supervisory
expectations and prudential framework on managing climate and
environmental risks, mandatory disclosure of climate risks
b. Support orderly transition to a low-carbon economy

e.g. intensified focus on bridging data gaps, expanded specialised
Position the financial funding and risk mitigation mechanisms, synergy between
system to facilitate national policies and financial sector initiatives, accelerated
an orderly transition capacity building initiatives on global platforms
to a greener
economy c. Integrate climate risks in the Bank’s internal functions and
operations
e.g. climate risk stress test for the financial industry, climate
and environmental risk considerations in the Bank’s portfolio
management activities, greater adoption of sustainability in the
Bank’s physical operations
13
VBI Financing and Investment Impact Assessment Framework
a. Sharpen Malaysia’s proposition as an international gateway

for Islamic finance
e.g. strengthened gateway-critical capabilities (particularly
5 on distributional capabilities, innovation, competitiveness),
deepening of Islamic financial and capital markets, mechanisms
for greater industry leadership
b. Strengthen policy enablers of value-based finance for greater

impact
Advance e.g. alignment of Shariah contracts’ application with the
value-based finance underlying wisdom (hikmah), broader application of taàwun
through Islamic (mutual assistance) in takaful, enhance impact-based disclosures
finance leadership
c. Mainstream social finance
e.g. blended finance and funding escalator models, multi-
stakeholder efforts to promote shared infrastructures

Malaysia’s Financial
Development Context
10 Key trends and developments
20 Our regulatory focus for financial development

Box Article:
Box Article:
Medium-term priorities for the prudential framework and anti-money laundering and
countering financing of terrorism (AML/CFT)

Key trends and developments

The financial sector has served the Malaysian economy well
It is vital that the financial sector is anchored on the real economy. This means that financial services should
ultimately improve lives and livelihoods – helping individuals or businesses grow their wealth, make payments,
own a home, grow their enterprise, manage financial risks and adverse events, create high quality jobs, and other
economic outcomes. To that end, Malaysia’s financial sector development has made good progress over the
years (Diagram 1).
Diagram 1:
Malaysia’s financial development progress at a glance
Financial services continue to be Continued growth, alongside greater

accessible while meeting economic needs integration and efficiency
96% of customers have active 170 e-payment transactions made per

deposit accounts (2011: 87%) capita (2011: 49)
95% of sub-districts have access

1
RM6.6 bil e-remittance made, with
to financial services (2011: 46%) lower costs and faster processing times
45% of business financing is 14 countries host operations of

made to SMEs (2011: 39%), of which Malaysian banks, whose overseas assets
75% are to microenterprises account for 25% of total assets
41% share of total financing by the 5 new locally-incorporated foreign

Islamic banking system (2011: 24%) banks with strong value propositions
established since 2011
42% of adults own at least one 42% share of global sukuk

life insurance policy or family takaful
issuances by Malaysia
certificate (2014: 33%2)
1
With population of at least 2,000 people
2
Earliest data available, after accounting for multiple policies per individual
Source: Bank Negara Malaysia, data as of end-2020 unless specified otherwise.
Malaysia’s financial system today is the outcome of

continued efforts and reforms over decades. Initiatives
pursued under the Financial Sector Masterplan 2001
Malaysia’s financial system today is
and the Financial Sector Blueprint 2011-2020 have
fostered an environment conducive for the financial the outcome of decades of continued
sector to keep pace with emerging developments and efforts and reforms
capitalise on new opportunities – thereby supporting
Malaysia’s economic development.
Along the way, core building blocks were established n Key initiatives to empower and protect
– many of which placed Malaysia’s financial sector on consumers. These include the introduction of
a stronger footing, not only to withstand the shocks of responsible financing guidelines in 2012. Against
the recent pandemic, but also to become a source of more competitive conditions, the guidelines
strength to cushion the economy: ensured that lenders remained prudent in assessing
whether borrowers could afford financing products
n Modernisation of the laws governing the over the lifetime of the financing – thereby
financial sector, particularly with the enactment promoting a more sustainable credit market and
of the Central Bank of Malaysia Act 2009 (CBA), sound credit culture. The guidelines also encourage
Financial Services Act 2013 (FSA), and Islamic sound borrowing decisions by consumers, with
Financial Services Act 2013 (IFSA). These reforms clear expectations set for financial institutions to
enabled us to be more responsive to risks to ensure that consumers are treated fairly in the
monetary and financial stability in an environment sales, marketing and administration of financing
when the financial system was becoming more facilities. In the area of insurance and takaful
interconnected. Enhanced legal powers paved the intermediaries, the Balanced Scorecard Framework
way for more effective oversight of more complex was also introduced in 2018 – aligning remuneration
structures that were emerging then, which are structures of insurance and takaful intermediaries
increasingly relevant today (e.g. financial groups, with better quality sales and policy servicing.
non-bank financial institutions). Our commitment More broadly, the recently introduced policy on
to other key financial regulatory objectives – such Fair Treatment of Financial Consumers has placed
as conduct regulation, financial inclusion, and expectations on financial institutions’ boards and
managing risks from non-bank financial institutions management to promote a culture of fair dealings
– were also cemented in these laws. with financial consumers.
n Regulatory reforms to create a strong, stable Complementing these efforts is our continued
and progressive financial system. Building on collaboration with the Government and other
lessons all the way from the 1997 Asian Financial stakeholders in the area of financial education,
Crisis (AFC), corporate governance and risk thereby supporting more well-informed decisions
management practices of financial institutions have by consumers. Notably, the Financial Education
been significantly strengthened. In the wake of the Network (FEN) was established in 2016 to
2007/08 global financial crisis, we also advanced coordinate and drive a national financial education
the adoption of key international standards (e.g. strategy in Malaysia. Meanwhile, advisory and
Basel III capital and liquidity reforms) – a crucial redress mechanisms have also been put in place to
enabler as Malaysia’s financial system was support individuals and businesses facing financial
becoming more integrated with the global financial distress. These include the Credit Counselling
system (e.g. greater overseas presence, capital- and Debt Management Agency (AKPK), Small
raising activities in international financial markets). Debt Resolution Scheme (SDRS), Corporate Debt
Restructuring Committee (CDRC), and Ombudsman
More importantly, these reforms placed the for Financial Services (OFS) – all of which are
financial system in a position of strength to be a established by the Bank.
shock absorber during economic downturns and
play a countercyclical role to support economic
recovery. Reflecting this, the range of financial
sector assistance during the pandemic – be it
debt restructuring for affected borrowers, or new
financing to help businesses recover and rebuild –
were possible only on account of the large buffers
built up during good times.

n Reforms to support Islamic finance Financial Centre (MIFC) agenda, key initiatives have
development. The CBA reinforced the role of also been advanced over the years to strengthen
the Shariah Advisory Council, thereby according Malaysia’s global standing for Islamic finance –
it the status of the sole authoritative body on including to develop global infrastructures such
Shariah matters pertaining to Islamic finance. as the Islamic Financial Services Board (IFSB)
Enhancements to the regulatory framework and International Islamic Liquidity Management
following the enactment of the IFSA have Corporation (IILM).
strengthened foundations for end-to-end Shariah
governance and compliance in the Islamic n Growing adoption of electronic payments
finance sector. This has allowed Islamic financial (e-payments), alongside modernising of key
institutions to make full use of the diverse spectrum infrastructures. The use and acceptance of
of Shariah contracts in financial transactions to e-payment methods by businesses have accelerated
design products that better meet customer needs, over the past decade. Through concerted efforts
while being assured of the sanctity and validity of with industry players, we have lowered the cost
such transactions in the eyes of Shariah. With this of e-payments to make it more affordable. For
groundwork, the focus has since turned to efforts instance, this was achieved by addressing price
to give full effect to the underlying principles of distortions such as those existing between cash
Shariah. An important step in this journey was the and cheques against e-payments. Key infrastructure
introduction of VBI, which calls on Islamic financial enhancements were also rolled out – most notably,
institutions to engineer solutions and adopt the Real-time Retail Payments Platform (RPP), which
practices that have a more positive impact on the serves to support instant and seamless payments
economy, community, and environment. – not only between bank accounts, but also with
e-wallets. Together with efforts to raise public
Meanwhile, as part of concerted efforts with the awareness and confidence in the use of e-payments,
Government, financial regulators and industry these initiatives have made it easier for Malaysians
players under the Malaysia International Islamic and businesses to make and receive payments, be it
in the physical or online world. These developments
were vital in helping Malaysians manage the shock
of the pandemic – which called for more contactless
and digital transactions.
n Enhancements to the financing ecosystem for

small and medium enterprises (SMEs), including
microenterprises. While credit decisions are
commercial decisions for banks to make, we have
worked with industry players to establish various
mechanisms to bridge financing gaps. These
include Credit Guarantee Corporation Malaysia
Berhad's (CGC) imSME platform. Introduced
in 2018, the platform enables SMEs to get fast
access to a diverse array of financing products
offered by various lenders. Meanwhile, SMEs facing
difficulty with their financing applications may seek
the assistance of Khidmat Nasihat Pembiayaan
(MyKNP) to discuss challenges associated with
their applications. The SDRS also helps financially
distressed SME borrowers restructure or reschedule
their financing. This was important during the
pandemic in complementing repayment assistance
programmes offered by lenders. Collectively, these
mechanisms support an ecosystem that aims
to ensure that the financing needs of SMEs are
well supported, be it in good times or bad. This is
particularly important given the sizeable role and
importance of SMEs to the Malaysian economy and
the distinct challenges they face in getting access
to financing as compared to larger businesses.
A new landscape places new demands on the financial sector

As we continue to build on these foundations, it is crucial that the Malaysian financial system keeps pace with
emerging developments. Looking ahead, various megatrends are expected to shape the future economic and
financial landscape (see Diagram 2 for an overview). The pandemic has accelerated certain developments –
accentuating some pre-existing vulnerabilities while also giving rise to opportunities for reforms that are long
overdue.
Diagram 2
Key megatrends shaping the economic and financial landscape
Economic conditions Demographics

Uneven global economic recovery, Risks of financial exclusion amid
alongside other uncertainties (e.g. ageing population and other
virus path, global supply chain persistent gaps (e.g. socioeconomic
shifts) disparities, financial literacy)
Technology Climate and environment

Promise of better financial Need for a just and orderly transition
services but with new regulatory to greener, more climate-resilient
challenges amid shorter economy and financial sector
innovation cycles, new skillsets
required and blurred boundaries
Macroeconomic trends amid an uneven global economic recovery

The shocks from the pandemic have led to the world economy’s deepest recession since the Great Depression,
where global gross domestic product (GDP) contracted by 3.1% in 2020. Since then, an unprecedented fiscal and
monetary response at the global level has been crucial in charting the global economic recovery. Growth prospects
have also improved with the progress in the rollout of vaccines across many countries.
Against this backdrop, the global economy is expected to rebound. According to the International Monetary Fund
(IMF), the global economy is forecast to grow by 4.9% in 2022. The path to recovery, however, is likely to be
uneven across countries, depending on differences in – and efficacy of – fiscal and monetary stimulus, as well as
vaccination programmes.
As a small and open economy, Malaysia’s opportunities and risks will continue to be shaped by developments
and uncertainties beyond our shores. Prolonged effects on global trade are also possible, amid social and
geopolitical tensions in an increasingly multi-polar world order. There are also pressures towards deglobalisation,
alongside rising protectionist sentiments and potential shifts in global supply chains. On the public health
front, the evolutionary path of the virus is another uncertainty – and may trigger new threats. This can lead to
containment measures that affect economic activity. Among others, these trends will weigh on the strength and
speed of global growth.

The financial sector is expected to play an important

role in supporting economic transformation.
Structural reforms are needed to Traditional modes of finance will remain important.
lay foundations for innovation-led Complementing efforts to reform the economy, the
growth and mitigate scarring financial sector will need to meet new and more
effects from the pandemic complex financing demands – such as for high-tech
firms and other enterprises in highly innovative ventures.
In navigating the challenges ahead, Malaysia In paving the way for the future of finance, it is vital to
must remain committed to executing structural ensure that the financial sector absorbs, rather than
reforms. Beyond the immediate focus of protecting amplifies, shocks and vulnerabilities in the economy.
lives and livelihoods, the broader objective should be Avoiding an excessive reliance on debt will be key to
to mitigate longer-term scarring effects from the crisis, that outcome. Apart from the recent pandemic, history
while laying the foundations for a more innovation-led has rich lessons to offer – particularly the experiences
growth model to remain competitive at an international of “lost decades”, where markets with rapid expansion
level and sustain our economic progress1. Key of debt outpacing economic growth suffered prolonged
areas of reform should include investment policy and economic downturns and adverse effects on
incentives, labour markets, as well as digitalisation. productivity in the wake of financial crises.
This includes helping key segments, such as SMEs, At the same time, “too much finance” may diminish
to pivot to a higher productivity growth path. Notably, benefits to economic growth – with potentially
SMEs have benefited from continued access to finance detrimental effects (e.g. more frequent booms and
(45% share of total business financing in 2020), but busts of an economy, diverting human capital away
there is still considerable room to translate that into from productive sectors)3. Alternative finance –
higher economic output (38% contribution to GDP including non-debt-based solutions such as blended
in 2020) to be on par with regional economies – e.g. finance, venture capital (VC), private equity (PE), equity
Indonesia (61%), China (60%), and Singapore (47%)2. crowdfunding (ECF) – can complement traditional
finance, providing new and potentially more resilient
ways to fund the economy.
Rapid technological change
The transformative forces of digitalisation are fuelled Digitalisation will also continue to shift consumer
by rapid technological advancements such as artificial and business behaviour. Following the pandemic,
intelligence (AI) and machine learning (ML), distributed the ‘low-touch’ economy has become much more
ledger technology, and potential future applications pervasive. Customers have become much more
from quantum computing. These will affect the delivery familiar with digital and remote access amid public
of finance in a multitude of ways. health concerns and movement controls. Although
physical channels will likely remain relevant, this
As the wave of digitalisation sweeps across other behavioural shift could be permanent for certain
sectors in the economy, the demand for financing segments, especially among digital natives. Customers
will change as well. The Twelfth Malaysia Plan will increasingly demand an experience that is more
(RMK12) expects new innovative and technology- frictionless, affordable, and customised, whether in
intensive industries, particularly the aerospace, the broader economy or financial services specifically.
biomass energy, electrical and electronics (E&E), Governments, regulators, and industry players alike will
halal, creative and smart agriculture industries to drive need to have clear digitalisation strategies – not only
economic growth. Finance will need to support these to remain relevant, but to ensure that transformation
new and emerging industries, which are critical for efforts do not inadvertently heighten risks, such as to
Malaysia’s economic transformation. operational resilience, cyber security, and inclusion.
1
For further details, please refer to the Box Article titled “Innovation Malaysia: Towards Higher Quality Growth in a Post-pandemic Future” in Bank Negara
Malaysia’s Economic and Monetary Review 2020, accessible at https://www.bnm.gov.my/documents/20124/3026377/emr2020_en_box2_innovation.pdf.
2
Source: Data compilation from Statistics Indonesia, Singapore Department of Statistics and China’s Ministry of Industry and Information Technology.
3
Source: Arcand, Berkes and Panizza (2012), “Too Much Finance?”, IMF Working Paper 12/61; Philippon and Reshef (2013), “An International Look at
the Growth of Modern Finance”, Journal of Economic Perspectives.
In the digital world, the heightened focus on the Digitalisation is also profoundly reshaping
customer comes with an intensified focus on the dynamics of the financial sector. A major
data, often described as the new ‘oil’. Increasingly, development is the blurring of the lines between
financial institutions are making use of AI and ML to financial and non-financial services, as players seek to
better understand consumer behaviour and spending build ecosystems. Commercial enterprises – including
patterns. This can support better risk management Bigtechs – are making inroads into financial services,
practices, more accessible financial services, and leveraging their existing networks of customers and
more customer-centric innovation. There is also a merchants. Meanwhile, incumbent financial service
growing recognition of the criticality of key financial providers (FSPs) are entering into an array of strategic
infrastructures that store, share, or synthesise these partnerships, such as with fintechs and other firms,
data. These include payment and settlement systems, to better serve their customers. In parallel, emerging
as well as credit information systems. Combined with innovations – such as those in the decentralised
the Government’s initiatives – notably the National Data finance (DeFi) space – are also introducing novel ways
Sharing Policy (NDSP) to expand data accessibility to store and mobilise funds, with potentially greater
– we expect more room for data-driven innovations control by end-users.
moving forward. The regulatory landscape for financial
services will also need to evolve in tandem, particularly Collectively, these trends intensify competition and
to promote responsible and ethical use of data. collaboration – introducing new business models, as
well as the promise of more efficient and innovative
financial services. But these trends will also raise
Rise of digital ecosystems demand questions about how to keep these services inclusive
policy responses that unlock benefits and secure, while preserving market vibrancy.
while managing regulatory arbitrage, Safeguarding cyber security, including to manage
‘weakest link’ risks – amidst growing relationships
potential spill-over risks and a growing
between financial institutions and third party service
reliance on third party service providers providers (TPSPs) – will be critical.

Demographic shifts and challenges

Malaysia is expected to become an ageing nation As the economy recovers, it will be important to put in
by 20304. Coupled with slower population growth, place measures to gradually rebuild financial buffers
there will be new opportunities and challenges for the that were affected during the crisis, such as retirement
financial system. Visible coverage gaps remain among savings and longer-term investments. Meanwhile,
retirement savings schemes in Malaysia. For instance, priority must continue to be accorded to expand the
the Employees Provident Fund (EPF) estimates that coverage of social insurance schemes, with private
two out of three active EPF contributors may have financial sector solutions complementing protection
insufficient retirement savings to meet a minimum cover needed by this growing segment to build
pension of RM1,000 per month5. Meanwhile, private resilience against future economic and financial shocks.
retirement schemes may be insufficient, with less
than 3% of Malaysia’s workforce having a Private Other socioeconomic factors are also relevant in
Retirement Scheme (PRS) account6. shaping financial development. Socioeconomic
disparities, such as income and wealth inequality
These gaps need to be addressed at the national scale, – alongside rising cost of living – are relevant
and the financial sector can play a role – in particular, considerations. It will be important to ensure that
to support greater household wealth accumulation for developments in the financial sector continuously strive
retirement and individuals to manage longevity risks. to be more inclusive, particularly in meeting the needs
It will also be critical to ensure sufficient diversity in of individuals and businesses that are unserved and
financial products and services that are linked to health underserved. Financial services will need to remain
and income protection – as well as to raise awareness affordable and accessible, so that it addresses the
of available products in the market. societal needs of various segments.
Financial literacy gaps will also remain relevant in

determining financial development priorities ahead.
Attracting quality investments is A recent study found that Malaysians scored below
important to rebuild buffers that were average in financial knowledge, reflecting gaps in
eroded during the crisis, such as financial decision making7. Delivery of products
retirement savings and services, in particular innovations, must be
supplemented with safeguards. These should aim
to preserve sound consumer outcomes, while
The future of work also presents positive prospects empowering individuals to make well-informed financial
and challenges for jobs, such as the growing decisions based on their circumstances.
gig economy. However, social insurance coverage
gaps remain for workers in the informal sector and More broadly, the financial sector can play a role
the self-employed, arising both from the absence of in supporting greater social resilience and upward
an Employment Insurance System (EIS) equivalent mobility, such as by combining financial services
cover and undersubscription to Self-Employment with other services for the customer (e.g. advisory,
Social Security Scheme (SESS) for employment financial education, capacity-building) and offering
injury protection. The pandemic surfaced some of more innovative products to help customers grow
these gaps, with workers in these segments being hit and secure their wealth. At the very least, the
particularly hard – amplified by typically lower savings. financial sector should avoid further deepening
existing disparities, such as through greater
household indebtedness for non-productive activities.
Competition will continue to be key in advancing these
outcomes, especially through the entry of players that
target existing market gaps or segments that may be
served better.
4
Population aged 60 years and over surpassing 15% of the total population.
5
Source: EPF (2018), “Social Protection Insight 2018”.
6
Source: Manulife Investment Management (2019). “A Zoom into Asia’s Pension Reform Journey: Different Perspectives of a Multi-pillar Approach”.
7
Source: OECD, International Network on Financial Education (2020), “International Survey of Adult Financial Literacy”.
Climate change and the broader sustainability agenda

The implications of climate change are also becoming more evident. Climate-related events – such as storms,
flooding, droughts – have been intensifying in severity and frequency. The knock-on effects can go beyond nature
and affect livelihoods, food security, and businesses. There can be further risks to financial stability as the health
and resilience of the financial sector are linked to the broader economy.
Reforms needed for a more

climate-resilient and greener
growth model
Efforts to reinvigorate the economy must aim for a greener model of growth. Tackling this challenge requires
making bold policy decisions including adopting carbon pricing, ensuring energy security as a key priority, and
formulating a stronger international cooperation framework. As a signatory to the Paris Agreement, Malaysia has
committed to reduce greenhouse gas (GHG) emissions by 45% by 2030, and a further 60% in 2035 compared to
2005 levels. As the central bank, we are equally committed to foster a climate-resilient financial sector that also
supports an orderly transition to a low-carbon economy, in line with the Paris goals and the Government’s longer-
term commitment to become a net zero nation.
Malaysia’s efforts will also contribute to the growing global movement towards promoting greater
environmental sustainability. Climate change – and its associated raft of reforms – can be expected to alter
the course of economic development. Malaysia’s active efforts on this front will preserve the nation’s economic
competitiveness, especially as more countries introduce climate change legislation, carbon management
programmes, and other climate-related initiatives.
Beyond climate change, it will also be timely to advance efforts towards a more sustainable development model.
Other issues of environmental well-being, such as those relating to the circular economy and biodiversity, are
equally important.

The need for a ‘whole-of-nation’ approach

All crises – including the recent pandemic – come with a unique window of opportunity for reform. Malaysia
should seize it. Going forward, Malaysia’s growth must be innovation-led. This will call for reforms that can
improve our economic complexity – that is, productivity reflected by the diversity and sophistication of Malaysia’s
goods and services. To this end, the National Investment Aspirations (NIA) are important signposts8 that aim to
attract and promote quality investments, build innovation capacity, and increase both productivity and growth.
Making these things happen will require a concerted, collaborative effort by all stakeholders, be it the
public or private sector – a ‘whole-of-government’ and ‘whole-of-nation’ approach. To this end, the RMK12
has set out a range of aspirations and initiatives – among others, to achieve a strong economic recovery,
accelerated productivity, higher household incomes, widespread connectivity, improved well-being, and a greener
economy. Advancing these goals will be key moving forward.
Complementing these broader strategies, the Bank is committed to ensure that the financial sector
continues to provide a conducive environment for sustainable economic growth. This Blueprint will set out
how we plan to do this over the next five years. This is further supported by our envisioned outcomes and targets
for the financial sector in 2026, as set out in “What success looks like in 2026”.
The NIAs refer to overarching strategic developmental objectives to increase economic complexity, create high-value jobs, extend domestic industry
8
linkages, and develop new and existing clusters. For further details, please refer to the Box Article titled “Securing Future Growth through Quality
Investments” in Bank Negara Malaysia's Economic and Monetary Review 2019, accessible at
https://www.bnm.gov.my/documents/20124/2722983/emr2019_en_box1.pdf
Finance for all Finance for transformation Finance for sustainability
Diverse choices for customers, Significant growth in alternative Wider adoption of VBI to serve
with most preferring digital finance, supporting innovative the economy, community and
solutions ventures environment
s ‘Digital first’ solutions available s Steady growth in alternative s Steady growth in VBI-aligned
(e.g. invisible payments, finance channelled to new, assets, with a growing share by
digitalised motor claims, smart innovative enterprises (e.g. conventional banks and insurers
contracts) early-stage, asset-light, s Better quality disclosures to
s High level of trust in reliability technology intensive) support market incentives for
and security of online services s Greater use of alternative data more responsible and ethical
s Accelerated digital payments alongside traditional metrics for finance
adoption, with e-payment per more differentiated pricing and
capita increasing at a CAGR1 of inclusion Steady progress in greening
higher than 15% finance and financing green
Deeper global integration, Strengthened practices to
s
Strengthened financial safety including in Islamic finance assess, measure, disclose and
nets, especially for the most Faster, cheaper, more
s manage climate risk
vulnerable accessible and transparent Increasing share of financial
s
Insurance/takaful penetration
s cross-border payments in line flows towards climate
rate at between 4.8% to 5%2 with the Group of Twenty (G20) supporting and transitioning
Significant increase in take-up of
s roadmap activities – by 2026, more than
insurance/takaful, with doubling Malaysia continues to be
s 50% of new financing classified
of number of individuals recognised as global leader in
as C1, C2 and C3 under the
subscribed to microinsurance/ Islamic finance
CCPT5
microtakaful
Financial institutions provide
s
Growth in social finance
s Vibrant and dynamic financial
meaningful support to help
solutions and other value-added landscape
customers transition
services (e.g. upskilling) Healthy competition driving
s
continuous innovation to better
Confident and capable financial serve customers
consumers taking charge of Regulatory environment
s
their financial futures recognised as conducive for
Improved financial literacy,
s digital financial innovation
with narrowing gap between Open and interoperable
s
Malaysia’s OECD International
1
Compounded annual growth rate
infrastructures (e.g. payment 2
As a percentage of GDP
Network on Financial Education systems, technical standards for 3
Consumer Credit Act
(OECD/INFE) financial literacy data sharing) 4
Consumer Credit Oversight Board
scores, and the average score 5
Climate Change and Principle-based
of OECD members Taxonomy, where C1, C2 and C3
represent economic activities that
Consumer protection reforms
s are classified as “climate supporting”
(e.g. CCA3 and CCOB4, single or “transitioning” in terms of their
regulatory regime for financial contribution towards climate and
environmental objectives
advisors and financial planners)
... underpinned by stable and resilient foundations

anchored on the Bank’s mandates to promote monetary and financial stability


Broadly, our regulatory focus will be to:
n Foster market dynamism;

n Support sustainable development objectives; and
n Remain anchored on our mandate to promote monetary and financial stability conducive for sustainable
economic growth.
These underpin the strategies set out in the Blueprint and are further articulated in the remainder of this chapter.
Fostering market dynamism

With various major forces of change at play, the next stage of Malaysia’s financial development journey takes place
in a landscape that is extraordinarily uncertain. At the same time, Malaysia’s financial sector is now more well-
developed. Unlike the decades before, gaps that demand strong regulatory involvement may be less obvious.
In such an environment, fostering greater market dynamism is critical for the financial sector to adapt effectively
to a wide range of scenarios.
Regulatory efforts will aim to foster the right conditions for these outcomes, through targeted interventions to
remove undue barriers to competition and innovation, as well as to address market failures. Priority will be given
to ensure the well-functioning of three key market mechanisms – namely, market access, ecosystem enablers,
and market discipline (Diagram 1).
In relation to these market mechanisms, our focus will be to:
n Address undue barriers to market entry, while ensuring

We will aim to foster the right
orderly exit; conditions for a highly adaptive
n Promote ‘co-opetition’ efforts for critical ecosystem enablers; financial sector
and
n Strengthen conditions for market discipline focusing on more
empowered consumers.
Diagram 1:
Key elements of market dynamism
Market access, e.g. Ecosystem enablers, e.g. Market discipline, e.g.

s Entry regimes, e.g. licensing, s Open and interoperable s Enabling consumer choice
approvals infrastructures s Enhancing market
s Recovery and resolution s Common technical standards transparency, e.g. disclosures
s Collaborative oversight s Strengthening financial
arrangements capabilities of financial
s Financial sector talent consumers
Address undue barriers to market entry, while ensuring orderly exit

Entry regimes will be designed based on principles of to facilitate the entry of new players that contribute
parity and proportionality. This means that the same towards addressing prevailing gaps – such as in
types of risks will be regulated the same way (‘parity’), advancing greater financial inclusion.
with the intensity of regulatory requirements calibrated
in a way that is commensurate with the level of risk More broadly, we remain guided by our continuing
(‘proportionality’). objectives to promote market participation in a way
that serves the best interest of Malaysia, as set out
This may entail graduated entry pathways – where a in the FSA and IFSA. Maintaining a strong core of
new entrant is gradually transitioned into the existing resilient and competitive domestic institutions will
regulatory framework for incumbents – to better reflect continue to be an important consideration – particularly
the risk profile and stage of development of a new for stability-critical areas (e.g. systemically important
entrant. An example of this is the foundational phase in infrastructures). This reflects the important role of
our licensing framework for digital banks. domestic institutions as a countercyclical force
during times of unanticipated shocks, volatilities or
A more managed approach to market entry will uncertainties, as shown in past crises.
continue to be adopted. In determining the number
of new licences, we will seek to avoid excessive In any competitive market, the possible exit of individual
fragmentation in the financial sector – which creates players must also be expected. We see this as an
inefficiencies and vulnerabilities that can jeopardise important part of the creative destruction process, which
public interests and financial stability. Our aim will be creates more dynamic and adaptive players. This in turn
makes Malaysia’s financial ecosystem stronger and more
resilient in the longer-term. In this regard, we do not aim
We are keen to ensure that new for ‘zero failures’. Instead, we focus on reducing the risks
and impact when failures happen, such as by requiring
players contribute towards addressing
financial institutions to have clear exit plans for winding
prevailing gaps up business operations in a way that is not disruptive.
Promote ‘co-opetition’ and public-private partnerships for critical ecosystem

enablers
We will promote collaboration and coordination among We expect industry players to ultimately take the lead
relevant stakeholders to address ecosystem-wide in making these collective decisions to promote more
issues. These include developing shared infrastructures, sustainable outcomes that advance common interests,
technical standards, and other protocols to increase while taking into account longer-term commercial
efficiency and encourage innovation – which are implications for industry players. Industry associations,
preconditions for market dynamism. as well as public-private partnerships, can play a vital role
in this regard. A key success factor to greater industry
This is consistent with the principle of ‘co-opetition’ leadership will be financial sector talent (refer to the box
– where industry players pool resources to develop article “Futureproofing the financial sector workforce”).
ecosystem enablers, such as shared infrastructures –
which we have long promoted. The resultant efficiency
gains will deliver more affordable services to end-
users, such as consumers and businesses. Meanwhile, We will facilitate industry efforts to
competition would be intensified at the product level, with collaborate effectively on ecosystem
industry players aiming to differentiate themselves through enablers, such as infrastructures and
value-added features that better serve end-users. technical standards

On our part as the central bank, we will aim to We will also aim to promote open and interoperable
facilitate collective actions among industry players, design principles for key financial infrastructures, such
complementing our stability mandates. In doing as to futureproof access to payment and settlement
so, we will seek to preserve and encourage healthy systems and to promote open data initiatives. We see
competition among industry players. We will focus our this as a natural evolution of the financial sector, as
interventions on situations where there are clear red business models become more diverse and to some
flags of market failures or risks to the system. This may extent, less bank-centric. In these efforts, our key
be where desirable collective efforts – namely, those focus on preserving the overall resilience of these
that advance public interests – are not forthcoming infrastructures will remain.
due to overly dominant short-term or competing
commercial interests. Fear of first-mover disadvantage,
or the desire to shut out competition, are some of
these red flags.
Strengthen conditions for market discipline focusing on more empowered financial

consumers
We will seek to promote better informed decisions In parallel with efforts to empower consumers further,
by financial consumers. Combined with competition, we will also continue to strengthen standards of
consumer choice provides strong incentives for conduct applied to financial institutions to deliver fair
financial institutions to address pain points faced by consumer outcomes. This will be reinforced by the
their customers, or to innovate to attract new ones. use of our supervisory and enforcement levers to give
effect to these outcomes. Continued financial education
To this end, our longstanding efforts to help consumers efforts will therefore also be critical to progressively
make well-informed decisions continue to be essential. elevate the financial capability of Malaysians.
This includes ensuring that consumers have access
to the right information, and in a way that is easy to In addition, we will advance our current collaboration
navigate and understand. with the Ministry of Finance (MOF) and the Securities
Commission (SC) to pursue reforms to Malaysia’s legal
Another relevant factor is for financial consumers – and regulatory architecture for conduct oversight. These
upon being better informed – to be able to seamlessly aim to provide stronger and more consistent protection
act on their preferences. In this regard, we will continue for financial consumers across FSPs that are currently
to collaborate with other stakeholders to explore subject to different levels of formal oversight – aiming to
ways to make it easier for consumers to change their better align expectations on business conduct and fair
FSPs – namely, lowering ‘switching costs’. This will treatment of financial consumers across the industry.
take into account the need for minimum protections
to safeguard consumers against fraud and abuse, as
well as the implications to the overall resilience of the
financial system.
Reforms to Malaysia’s legal and

regulatory architecture for conduct
oversight will be advanced together
with the MOF and the SC
Support sustainable development objectives

As the financial sector navigates development opportunities, it will be important to ensure that we move towards
a more sustainable, inclusive, and responsible future. We remain committed to this outcome, which will contribute
towards supporting the United Nations Sustainable Development Goals (SDGs).
Diagram 2:
Focus areas for sustainable development
Mainstream VBI Address unserved and Support greater

underserved needs climate resilience and
environmental sustainability
Efforts to promote sustainable development objectives will aim to:

Signposts in the financial
n Mainstream VBI; development journey ahead
n Address needs of the unserved and underserved; and will be important to ensure a
n Support greater climate resilience and a more environmentally more sustainable, inclusive,
sustainable growth model. and responsible future
Mainstream VBI
VBI will continue to be a key framework to guide our financial development initiatives. Introduced in 2017, VBI
emphasises the need for financial services to have a clear and distinct focus on generating a positive impact on
the economy, community, and environment.
While the earlier stages saw a major role by Islamic financial institutions, the objectives and principles of VBI are
universal. We envision these considerations to be gradually mainstreamed moving forward, with more financial
institutions committing to the VBI agenda.
Address needs of the unserved and underserved

Our continued work to support inclusive financial services will be a major thrust of that broader vision. As we
look at enabling new business models and other innovations, we will seek to prioritise those that can better
address the needs of the unserved and undeserved. We emphasised this when we introduced the digital banking
licensing framework for Malaysia. Within the funding ecosystem, we will also implement initiatives and accelerate
institutional reforms – working with the relevant stakeholders – to ensure key segments in the economy (e.g.
SMEs) have continued access to finance, including alternative finance solutions. Other areas that we will be
paying greater attention to in the next few years will include more inclusive models for insurance/takaful, as well
as social finance.

Support greater climate resilience and a more environmentally sustainable growth

model
Environment-related initiatives will also be a major area of focus. Our priority here is to ensure that Malaysia’s
financial sector effectively evaluates and mitigates risks arising from climate change. We will seek to enhance
prudential frameworks in this regard, as well as our broader surveillance capabilities to better assess the complex
implications of climate risk on the financial sector. We will also actively consider opportunities for finance to play a
catalytic role in supporting the transition to a low-carbon economy.
For environmental sustainability, our

priority is to ensure that Malaysia’s
financial sector effectively evaluates
and mitigates climate risks
Across these efforts, we are committed to work together with various other stakeholders – from the Government,
businesses and civil society – to support Malaysia’s broader efforts to combat climate change.
Promoting monetary and financial stability

Our efforts to promote greater market dynamism and sustainable development outcomes will continue to be
firmly anchored on our monetary and financial stability mandates. To this end, the Blueprint clarifies outcomes
and principles for financial development in ways that are aligned with our core mandates – including what is
clearly beyond our appetite, given major implications to public interests.
Diagram 3:
Monetary and financial stability priorities
Ensure continued monetary policy efficacy
We will continue to ensure our monetary policy framework, strategies and tools remain
effective in a changing financial landscape
Intensify efforts to safeguard resilience and integrity of the broader financial ecosystem
Regulations and supervision must remain effective against emerging risks (e.g. operational
resilience, cyber risks, money laundering and terrorism financing (ML/TF)), avoid
procyclicality, and minimise regulatory arbitrage – with strengthened collaborative oversight
arrangements as different activities (including beyond the financial sector) become more
interlinked
Ensure continued monetary policy efficacy

We will seek to preserve monetary policy efficacy amid monetary policy. In addition, the diversification into
the changing environment. The megatrends we outlined non-debt based finance, including the increasing use
in the previous chapter – relating to macroeconomic of alternative finance instruments, will likely affect
conditions, technological change, demographics, and the relative importance of the traditional interest rate
climate change – may have important implications for channel in the transmission of monetary policy.
the conduct of monetary policy.
To this end, we will assess our monetary policy
The emergence of digital assets and currencies will framework, strategies, and tools to ensure that these
likely have an impact on the effectiveness of monetary remain fit-for-purpose in the years to come. This is
policy transmission, while the linkages between climate to ensure that we are well-positioned to continue to
risk and the broader macroeconomic conditions may achieve our core mandate of monetary stability and
give rise to new considerations for the conduct of orderly market conditions in this changing landscape.
Intensify efforts to safeguard resilience and integrity of the broader financial

ecosystem
We will aim to ensure that financial development Vital to ensure effective oversight at
efforts – whether by us or the industry – do not the ecosystem level, given blurring
erode system-wide resilience and financial integrity. of boundaries in the financial
To this end, we remain committed to continuously
landscape
enhance our regulatory frameworks in line with
international standards – such as those set out by the To that end, we will review – and where appropriate,
Basel Committee on Banking Supervision (BCBS), strengthen – current oversight arrangements for non-
International Association for Insurance Supervisors banks, be it for smaller entrants or larger non-bank
(IAIS), IFSB, and Financial Action Task Force (FATF) – financial institutions. This considers the potentially
where appropriate and relevant. heightened risks of regulatory arbitrage, and deepened
interlinkages beyond the financial sector, such as with
A crucial consideration moving forward will be the third party service providers (TPSPs) and other partners
blurring boundaries in the landscape – be it across of financial institutions. This is particularly relevant
financial services, or between financial and non- for risks to operational resilience, including those
financial sectors. Public interest objectives that were from cyber threats, and Anti-Money Laundering and
previously clearly demarcated are also becoming more Countering Financing of Terrorism (AML/CFT) concerns
interconnected. Issues relating to stability, competition, where the ecosystem may be only as strong as the
conduct, inclusion, and privacy – for example – are weakest link.
increasingly intertwined in the sphere of digital financial
services. Efforts will also be undertaken to advance shared
priorities among the financial regulatory community.
Against this backdrop, it is vital to ensure the This will be supported by continued efforts to
continued effectiveness of oversight arrangements strengthen inter-agency coordination to ensure existing
and coordination at the ecosystem level – including to laws and regulations are administered effectively in a
address the build-up of financial imbalances within the more complex landscape. We will also work with other
system (e.g. unsustainable levels of leverage or asset regulatory authorities to identify areas for enhancement.
bubbles), as well as in fighting financial crime across These may include streamlining of regulatory
the financial value chain. processes, or longer-term measures that may call for
new or enhanced legislation.
Five strategic thrusts for 2022-2026

In giving effect to our regulatory focus for financial development, we are driven by five strategic thrusts that are
set out in the following chapters:
1. Fund Malaysia’s economic transformation

2. Elevate the financial well-being of households and businesses
3. Advance digitalisation of the financial sector
4. Position the financial system to facilitate an orderly transition to a greener economy
5. Advance value-based finance through Islamic finance leadership
Box Article
Introduction
A competent and highly skilled workforce is critical for the financial system to function effectively.
Over the past decade, the size of Malaysia’s financial sector1 workforce grew by 16% (2020: 166,360),
driven by a larger proportion of higher skilled workers. Employment conditions in the sector remained
resilient amid challenging times throughout the pandemic. The financial sector has continued to be a net
creator of jobs, led by the banking sector. Net jobs gained after layoffs and discharges remained robust,
averaging above 4,000 jobs per year over the past three years2.
As the financial sector continues to evolve, jobs and skills will transform in tandem. The next stage
of Malaysia’s financial development journey will require a more adaptive workforce that is agile and
equipped with skillsets of the future to effectively perform their role.
1
Unless otherwise specified, “financial sector” in this box article comprises banking institutions (includes development financial institutions),
insurers and takaful operators.
2
Data on net jobs gained after layoffs and discharges is collected from 2016 onwards through the Bank’s Labour Market Statistics Survey for
Financial Services.
Box Article: Futureproofing the financial sector workforce
Key trends and developments shaping the future workforce
Continued demand and job opportunities for higher skilled talent
The financial sector continues to observe healthy demand for senior and middle management level talent3
(Chart 1). Job vacancies for senior, middle and entry/lower-level management4 increased over the last
few years, indicating that job opportunities in these categories remain healthy amidst sizeable unmet
demand. In contrast, demand for lower skilled and routine-based roles in the financial sector weakened –
the proportion of job vacancies for clerical, operative and elementary5 workers over total vacancies fell by
5.5%, alongside a decline in the proportion of employment for this segment.
Chart 1:
Employment and job vacancies by worker category in the financial sector (2017-2020)
Employment by worker
57.5% 55.6% category
24.3% % of total employment 24.0%

18.4% 20.1%
57.5% 55.6%
24.3% 24.0% 20.1%

18.4%
Senior & middle Entry/lower Clerical, operative &

management management elementary workers
2017 2020
Vacancies by worker category

% of total vacancies
57.9% 62.1%
33.5% 34.9%
8.6% 3.1%
Senior & middle Entry/lower Clerical, operative &
management management elementary workers
57.9% 62.1%
2017 2020
33.5% 34.9%
Note: Figures may not necessarily add up due to rounding 8.6% 3.1%
Source: Bank Negara Malaysia
3
Equivalent to managers and professionals categorised as Major Group 1 and Major Group 2 respectively under the Malaysia Standard
Classification of Occupations (MASCO) 2020.
4
Equivalent to technicians and associate professionals categorised as Major Group 3 under MASCO 2020.
5
Categorised as Major Group 4 and 9 under MASCO 2020. Primarily performs simple, routine and non-systematic tasks, such as compilation
and maintenance of financial transaction records and other information of business activities as well as general and miscellaneous functions.

Growing need for a workforce with strong digital skills and acumen
As Malaysia’s digital economy continues to expand, we expect to see an acceleration of digital

transformation in the financial sector. This reinforces the need for talent who are able to learn, apply, and
deploy emerging business models as well as new technologies. It also demands a workforce that is more
digitally savvy as a whole – with the ability to innovate and integrate business concepts with technology
and data (see Diagram 1 for further details). Globally, there is an urgent need to fill in the digital skills gap
for readily available talent, with skills shortage in local labour markets perceived as the largest barrier for
organisations to harness the growth potential from new technologies6.
The future of work and skills required is multifaceted
The transformation of work in the financial sector will be felt across various dimensions. The most significant
transformation will be in terms of how we work, skills, and people management. Flexible work arrangements
and acceptance of part-time or gig workers into the workforce is anticipated to be more widely adopted,
enabled through greater use of data, strengthened cyber resilience and governance arrangements.
Automation of routine-based tasks will see existing jobs evolve to require higher levels of human creativity,
judgement, and interpersonal skills. For instance, with greater adoption of AI, individuals staffing call centres
will take on an added level of complexity in their roles that requires them to contextualise, apply empathy,
and exercise judgement in assisting consumers to solve problems.
Emerging consumer and business priorities continuously reshape what it takes to

remain effective in job roles
Financial services providers with innovative product designs and personalised financial solutions that
cater to the needs of discerning consumers will have a competitive edge. This however will require talent
equipped with up-to-date knowledge of consumer or business-specific needs, that would enable financial
institutions to innovate and capitalise on these opportunities. It will also be important for the workforce
to keep abreast with emerging developments and priorities – such as SDGs, climate risks, value-based
finance and social finance – to continuously deliver value to consumers.
Shorter shelf-life of skills demands constant reskilling and upskilling
With various forces of change at play going into the future, the ability to quickly adapt to the new operating
environment will be critical. Financial sector talent must continuously learn new skills to remain relevant
and be ready to grasp new opportunities. This needs to be supported by access to comprehensive
upskilling and learning infrastructures made available for the workforce, both at an industry-wide and
organisation level.
6
This finding is consistent across 20 of the 26 advanced and developing economies (including Malaysia) surveyed in The Future of Jobs
Report 2020 by the World Economic Forum.
Collectively, these trends are expected to drive the evolution of jobs and skills – both in terms of jobs
creation and jobs at risk of displacement. Certain capabilities and skillsets will become more pronounced,
while certain roles will be re-engineered to complement business transformation (Diagram 1).
Diagram 1:
Anticipated evolution of jobs and skills of the financial sector workforce
Evolving composition of jobs in demand … is fuelling an urgency for continuous

and at risk in the workforce… upskilling and multifaceted skills
Emerging job roles

s Highly analytical & complex
Digital
s More technical, with specialised knowledge
s Technology complements for higher performance
Future
Data analysts, digital strategy specialists skills
Big Data, AI, ML, cyber security specialists Core Soft
Business development & network professionals
General operations support, underwriting

Data analytics & specialists
Bank tellers, finance & related clerks
Technology design & programming (e.g. AI, IoT2, ML)
Customer service & call centres Digital skills & technology use
(e.g. marketing, content writer)
Clerical support workers
Critical thinking & complex problem-solving
(e.g. data entry, book-keeping)
Leadership, ideation & social influence
Redundant job roles Emotional & social intelligence
s High-volume, routine & rules-based work
s Convergence of multiple roles Risk management, information security
s Can be substituted by technology/machines Regulations & compliance
(e.g. AI, RPA1, chatbots)
Credit, underwriting, business development
1
Robotic process automation (RPA)
2
Internet of Things (IoT)
Source: World Economic Forum, Bank Negara Malaysia
Preparing the workforce for the future: priorities moving forward

As we move ahead, financial institutions must intensify the focus on their people. The challenge
faced by financial institutions to upskill and reskill their workforce is significant – for most institutions,
bridging the skills gap is a challenge that cannot be solved alone. A dynamic and sustainable talent
ecosystem is thus crucial to continuously enhance talent capabilities and support the transition of the
financial sector workforce.
This is an area where we see a continued need for the industry to come together to take collective action.
Over the last decade, notable progress was made to raise the professionalism of the workforce and
strengthen institutional infrastructures for talent development. Enhancements to the quality and diversity
of training programmes facilitated upskilling – a greater proportion of the workforce today is equipped
with accredited professional certifications from a wide range of programmes covering leadership
development, ethics modules, and specialised certification tracks in key functions. Importantly, Malaysia
also continues to be globally recognised as a leader in Islamic finance talent development.

Going forward, strong industry-led initiatives to further develop the talent ecosystem will remain crucial
to effectively prepare the workforce for the future. We envision this outcome to be holistically driven by
various stakeholders and leaders in the financial sector – industry associations, FSPs, training providers,
professional bodies, institutions of higher learning, and union groups all play important roles to identify
key skills needs and training gaps for the workforce.
To this end, two key priorities that will pave the way towards a more dynamic and sustainable industry-led
talent ecosystem – including for Islamic finance talent – will be pursued in the immediate horizon.
First, develop and implement a Future Skills Framework for the financial sector
Given the multifaceted skills needs of financial services, a primary focus for the sector will be to establish
an industry-led framework that identifies skills required, job expectations as well as career development
pathways for individuals currently working in or aspiring to work in financial services. Over the long-term,
this is envisioned to support several key outcomes for the financial services workforce – it identifies roles
with an acute skills shortage, matches skills to jobs available, facilitates talent mobility across different
roles, enables training providers to respond to training needs, and supports individuals to chart their own
professional development paths. To complement this, continuous efforts to raise the professionalism of
the workforce through higher standards of professional programmes and qualifications for various career
pathways – from risk specialists to loss adjustors – will also be important. The framework should be
designed to benefit multiple stakeholders across the financial sector talent ecosystem, enabling each actor
to make better informed decisions and play its role effectively (Diagram 2).
Early job impact identification and mitigation plans are important to enable recalibration of the workforce
towards new roles – and something we expect all financial institutions to drive. Nonetheless, we
recognise that some job losses may be inevitable. A whole-of-industry approach is thus important to
ensure appropriate supporting mechanisms are in place to minimise the impact of job displacement on
livelihoods and support an orderly transition of the affected workforce to jobs in other organisations or
economic sectors. Such support may include, among others, appropriate compensation, financial support
to reskill and outplacement assistance.
The impact of new business models and technological advancement on the evolution of jobs and skills is
ubiquitous – its effects will be felt not only by the financial services sector, but Malaysia’s workforce as a
whole. A coordinated effort to reduce fragmentation and advance the implementation of a holistic future
skills framework for Malaysia at a national level would complement the Financial Sector Skills Framework
to unlock greater benefits and synergies in cross-sector talent mobility.
Diagram 2:
Envisioned outcomes and benefits of a Future Skills Framework for the financial sector
Job-skills matching Integrated, high-quality

s Identifies vertical and lateral training ecosystem
advancement opportunities s Mutual recognition of
s Continuous identification of qualifications and learning
common, transferable skills to programmes based on
facilitate job mobility across industry-agreed quality
sub-sectors assurance standards
s Supports design of training
programmes based on
Clear career pathways common skills language
s Information on industry trends
and occupation requirements
s Outlines clear professional
qualification and skills Lifelong skills mastery
requirements for career s Comprehensive resources on
pathways skills upgrading to enable the
s Clarity and consistency on acquisition of new technical
what is required to meet and non-technical skills
different skills levels
Identifies emerging jobs Complements national

and skills in demand infrastructures
s Fluid – continuously redefines s Capable of inter-operating with
and re-identifies key skills in existing national employment
demand to keep up with the and skills development
future economy initiatives
s Complements existing skills s Complements curricula in
with those that will be relevant institutions of higher learning
in future
Students Employees Employers Training Providers

s Learn about job scopes Make informed decisions s Identify emerging s Gain insights on sector
and work attributes in based on: skills and build staff trends and emerging skills
demand s Job prospects and job capabilities in demand
s Make informed decisions scope s Develop job profiles s Develop appropriate
on choice of study and s Skills in demand s Enhance talent attraction, curricula and training
career choice management and programmes to meet
s Career aspirations
s Prepare for job retention sector’s needs
s Length and requirements
applications of career pathways
s Programs to develop skills
Second, align existing requirements on training and development applicable to

financial institutions
We will undertake a holistic review of requirements on staff training and development applicable to
financial institutions, with a view to uplift the Staff Training Expenditure (STE) policy in 2022 and Staff
Training Fund (STF) policy by end-2026. We will also engage with the financial industry to explore
opportunities for more effective coordination, synergies, and collaboration across the financial sector
talent ecosystem – particularly where it will serve to deepen the talent pool for the financial industry and
encourage talent growth and mobility.

Box Article
Medium-term priorities for the prudential framework
and anti-money laundering and countering financing of
terrorism (AML/CFT)
The recent pandemic has underscored the importance of prudent risk-taking and building up buffers
in good times – so that the financial system can cushion unexpected shocks during a crisis and be an
effective countercyclical force to support economic recovery. We will continue to ensure the continued
effectiveness of Bank Negara Malaysia’s prudential framework for financial institutions, with the focus
areas outlined below for the next five years.
Basel III capital requirements

Introduced in the wake of the 2008 Global Financial Crisis, the Basel III reforms have been integral in
promoting the resilience of the global banking system. Over the years, Malaysia has implemented most of
the key elements of this reform package – particularly the minimum capital requirements, leverage ratio,
and liquidity standards.
Our priority ahead will be to review and implement Basel III reforms related to the computation of
risk-weighted assets – with a focus on credit risk, operational risk, counterparty credit risk, securitisation,
and exposures to central counterparties. We will also review the Single Counterparty Exposure Limit
(SCEL) policy to take into account developments in international standards on large exposures where
relevant. This will include potential refinements to the limit, scope of eligible collateral, and treatment of
specific exposures (e.g. to sovereigns, central counterparties and intragroup entities).
As with existing practice, in the adoption of international standards, we will carefully consider relevant
applications in the Malaysian context, as well as the expanding footprint of Malaysian financial
institutions abroad. Where relevant, we will also continue to ensure that regulatory standards are
proportionate to the risks at hand, while taking into account the industry’s operational readiness and the
need for transition arrangements.
Box Article: Medium-term priorities for the prudential framework and
anti-money laundering and countering financing of terrorism (AML/CFT)
Risk-Based Capital Framework for Insurers and Takaful Operators

(RBC/T)
Since the implementation of the RBC/T in 2009 for insurers and 2014 for takaful operators, market
conditions have evolved alongside greater product innovation and the introduction of new takaful models
and Shariah contracts. New global regulatory measures such as the Risk-based Global Insurance Capital
Standards (ICS) developed by the IAIS have also paved the way for greater convergence on international
capital adequacy standards.
In line with these developments, we have commenced a holistic review of the RBC/T to ensure its
continued effectiveness to respond to new and emerging risks, as well as to align measurement practices
across the insurance and takaful industry. This should enable the insurers and takaful operators (ITOs) to
align their business strategies and remain competitive. We intend to broadly align our RBC/T with the ICS,
both in terms of the framework design and timeline. In the years ahead, we will also seek to build upon
the industry feedback on proposed enhancements to the RBC/T, particularly on the appropriateness of
broad design elements to the different business models.
The review will also consider Shariah principles to facilitate greater fungibility of capital between takaful
funds, which is currently restricted to reflect different ownership of individual funds. These considerations
will include taàwun (mutual assistance) for surpluses in a particular takaful fund – in excess of capital
requirements at the fund level – to be used to support another takaful fund.
AML/CFT measures
As the competent authority under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of
Unlawful Activities Act 2001 (AMLA), we remain committed to drive a robust national AML/CFT regime.
In doing so, we have led efforts to establish the necessary mechanisms and initiatives for effective
prevention, investigation, and prosecution of financial crimes, in collaboration with the domestic law
enforcement agencies (LEAs), reporting institutions, foreign financial intelligence units, regional and
international groups, as well as other relevant stakeholders.
In this regard, our medium-term priorities for preserving the integrity of the financial system will continue
to build on the established collaboration mechanisms, while targeting mitigation of the ML/TF risks
identified in the recently concluded National Risk Assessment 2020 (NRA 2020)1. Overall, our strategies
will be anchored on three key thrusts.
First, we will explore integrated efforts to improve coordination to better prevent, detect, disrupt and
dismantle financial crimes at the earliest opportunity, prioritising highest-risk crime, namely fraud and
crimes with elements of organised criminal syndicates. This includes the development of an information
sharing platform between participating financial institutions and relevant LEAs to minimise the dissipation
of scammed funds and leveraging on the National Anti-Financial Crime Centre (NFCC) to conduct joint
intelligence and investigation focusing on organised criminal groups.
The NRA 2020 had identified that the banking system, remittance services and designated payment instruments continue to be abused to
1
facilitate top five high risk crimes – fraud, corruption, smuggling, illicit drug trafficking and organised crimes. This is further aggravated by
increasing digitalisation in the financial sector and the swift nature of domestic and cross-border transactions.

Second, we will continue to further our understanding of the emerging and higher ML/TF risk areas,
involving financial and non-financial sectors, to provide responsive mitigating policies and guidance to
reporting institutions. Among others, we will focus on assessing the key ML/TF risk drivers identified in
the NRA 2020, such as the growing use of virtual assets and technology to facilitate financial crimes and
the exposure emanating from digitalisation of financial services or digital banking. Emphasis will also be
placed on other high-risk areas, such as the abuse of shell and shelf companies, or professional services.
Third, consistent with regional and global developments, we will encourage industry-led collaborative
initiatives to drive more efficient practices and strengthen the compliance culture in the industry. These
initiatives include the issuance of sector-driven AML/CFT guidance or best practices to streamline
the implementation of specific measures, development of professionally qualified or certified subject
matter experts through accreditation or train-the-trainer programmes, as well as development of shared
infrastructure or solutions for effective monitoring and information sharing on ML/TF risks.
Responsibility mapping
We will finalise the Responsibility Mapping Framework, which was proposed at end-2019 before the onset
of the pandemic. Reflecting the importance of the tone-from-the-top, the framework aims to ensure that
responsibilities for key functions, including those prescribed by laws and regulations, are clearly allocated
to individuals at senior levels.
By enabling greater clarity and transparency in the governance and accountability of individuals in the
financial institutions, the framework supports several important outcomes. These include facilitating
meaningful regulatory engagements with the board of directors of financial institutions on the operations
and decision-making process of the financial institution, driving better decisions through strengthened
incentives for good conduct and culture, and allowing institutions to address barriers that may prevent key
individuals from carrying out their duties effectively. In the longer term, these internal transformations will
be key to bolster the industry’s long-term financial soundness – and in turn, their continued ability to fulfil
their obligations and meet the customers’ needs.
Box Article: Medium-term priorities for the prudential framework and
anti-money laundering and countering financing of terrorism (AML/CFT)
Risk Management in Technology (RMiT)

The rapid pace of change in the digital landscape means that regulatory expectations must evolve in
tandem to remain effective. We will prioritise fine-tuning the RMiT policy, which is a central piece of the
regulatory framework for technology risk management. Efforts on the RMiT in particular will be guided by
four thrusts.
First, we will ensure greater supervisory focus on how financial institutions manage risks from TPSPs. Our
supervisory activities will focus on financial institutions’ overall governance, due diligence, continuous
monitoring, and data protection – and whether safeguards are commensurate with the scope of services
provided and criticality of information being processed by TPSPs. The goal will be to ensure that
TPSPs do not become the ‘weakest link’ in the supply chain. Complementing this, we will also explore
supporting broader initiatives to develop common standards for TPSPs in relation to governance and
risk management, in line with the interest among TPSPs to bolster confidence on the robustness of their
services. This may entail leveraging the RMiT as a baseline for TPSPs to develop such standards.
Importantly, heightened supervisory focus in this area complements the broader digitalisation strategies
in the Blueprint – particularly on regulatory oversight and cyber security (refer to the chapter “Advancing
digitalisation of the financial sector”), which emphasise the need to consider the broadening perimeter of
risks, including those arising from greater partnerships with TPSPs.
Second, we will enhance our guidance to the industry on cloud service management. We will consider
various possible models for future oversight arrangements, with the desired outcome of establishing
assurance that cloud service providers (CSPs) are mitigating risks effectively. To this end, it will be
important for industry players to strengthen their capacity in understanding these operations, particularly
the resultant risks to financial institutions – rather than solely relying on the CSPs or appointed TPSPs for
knowledge and expertise on cloud-related arrangements. We will look to financial institutions to have a
clear roadmap in building internal capabilities in this regard.
Third, we will heighten our scrutiny on the implementation of ‘high availability’ infrastructures. Such
infrastructures include online financial services, for which there is a reasonable expectation for minimal
disruptions or continued service availability by customers and counterparties. Maintaining a high level of
uptime is therefore crucial, particularly to preserve confidence in the financial sector. As industry players
are making encouraging progress in this regard, we will remain open to different approaches by respective
financial institutions to build greater operational resilience into their ‘high availability’ infrastructures.
Fourth, the Bank will explore allowing financial institutions to rely on their internal risk function in
conducting risk assessment, as the industry's infrastructure and practices mature. Currently, the use
of external service providers for independent assessment is required in the RMiT. We expect financial
institutions to leverage these external assurance arrangements to build internal capacity for technology
risk management.
Recovery and resolution planning

In recent years, we have collaborated with Malaysia Deposit Insurance Corporation (PIDM) to establish
a policy framework to implement recovery and resolution planning (RRP) for financial institutions in
Malaysia – guided by the Financial Stability Board’s (FSB) Key Attributes of Effective Resolution Regimes
for Financial Institutions. This framework serves to ensure continued resilience of the financial system in
times of distress and avert episodes of financial institution failure that could threaten financial stability.
With the release of the Recovery Planning policy in July 2021, the recovery plans in Malaysia will be
implemented on a phased approach. Our immediate focus will be on financial institutions under the
first phase of the roll-out plan, with first submissions from banks on their recovery plans expected in
2023. These recovery plans will serve as an important starting point to support PIDM’s resolvability
assessments and resolution plans.

Strategic Thrusts
38 Fund Malaysia’s economic transformation
52 Elevate the financial well-being of households and businesses
68 Advance digitalisation of the financial sector
Box Article:
90 Position the financial system to facilitate an orderly transition to a

greener economy
102 Advance value-based finance through Islamic finance leadership
Box Article:
Social finance as an enabler of social development in Malaysia

Strategic Thrust 1
Fund Malaysia’s economic transformation
As Malaysia continues its transformation to become a high-income, high value-added economy, a vibrant and
resilient funding ecosystem will be key. The immediate focus will be for the financial sector to provide continued
support in the path to a sustainable recovery. Alongside this, the financing and investment landscape must
evolve to support a dynamic model of economic growth – one that is innovation-led, with highly productive and
internationally competitive firms.
With this in mind, we will advance three strategies (Diagram 1).
Diagram 1:
Fund Malaysia’s economic transformation
A Sustain a strong economic recovery

w Strengthen counter-cyclical measures for continued access to financing
w Support measures for distressed borrowers to manage debt burden
w Facilitate ‘second chances’ for non-viable borrowers
B Facilitate transformation to a high-income nation

w Sustain and grow alternative finance and its supporting infrastructure
w Strengthen the regulatory framework and collaboration to promote
development of the non-debt finance ecosystem
w Reinforce the finance ecosystem for microenterprises for sustainable and
inclusive growth
C Ensure post-pandemic resilience of financial intermediation role

w Preserve funding capacity in the long-term
w Strengthen vibrancy and resilience of financial markets to act as an
absorber of risk
Strategic Thrust 1: Fund Malaysia’s economic transformation
Strategy 1A
Sustain a strong economic recovery
A swift and robust recovery from the pandemic is paramount. Even as economic conditions improve, progress
may be uneven, with possible challenges remaining for the lives and livelihoods of Malaysians.
The financial sector has the capacity to continue supporting the broader economic recovery, and in particular,
affected households and businesses. The focus of our strategies is to ensure viable borrowers continue to have
access to finance, while at the same time assist non-viable borrowers towards orderly resolution arrangements.
In considering these strategies, we will also uphold value-based finance principles – that is, combining the
dual objectives of profit and social responsibility, to create a positive impact on the economy, society, and
environment.
To this end, we will seek to advance the following:
i. Strengthen counter-cyclical measures for continued access to financing;

ii. Support measures for distressed borrowers to manage debt burden; and
iii. Facilitate ‘second chances’ for non-viable borrowers.

i Strengthen counter-cyclical measures for continued access to financing
n We will review the credit guarantee ecosystem, n We will strengthen the role of development financial
where necessary, to ensure that it supports institutions (DFIs) to bridge financing gaps to
financing. The pandemic has underscored the strategic economic sectors and underserved
importance of guarantee facilities in ensuring segments through the following measures:
continued lending in a time of uncertainty. We will
work with the industry and Government to expand o First, we will work closely with the Government
the capacity of guarantee providers, including the to successfully complete the restructuring of
CGC and Syarikat Jaminan Pembiayaan Perniagaan the DFI industry. The multi-year reform, which
(SJPP), to support the evolving financing needs of was announced in 2019, will see a consolidation
underserved segments. This includes supporting of the industry, driven by two key outcomes.
mid-sized corporates to undertake investments that One, the reforms will introduce a robust and
increase productive capacity, as well as providing strong governance structure to strengthen the
credit enhancement for new-to-bank customers accountability and transparency of DFIs as
and innovative firms in high-growth sectors. public institutions and ensure effective delivery
Next, we will consider streamlining the respective of their respective mandates. The restructuring
mandates, risk appetites, and product features also aims to establish DFIs with larger
of the guarantee providers vis-à-vis their target economies of scale and greater diversification of
segments. This is to address any redundancies and portfolios to better manage risk. This will allow a
overlaps in the guarantee ecosystem. more efficient allocation of capital and resources
to finance key target segments and align with
n We will aim to address the industry’s need for national development priorities, including growth
forward-looking and alternative data to improve areas identified under the RMK12.
financing to target segments, especially to those
with limited credit records. The exceptional o Second, we will continue to build on
conditions and policy support measures during the the implementation of the performance
pandemic had substantially affected the reliability measurement framework for DFIs initiated by
of historical credit and non-credit information the Bank in 2018, whereby key result indicators
in providing a risk outlook. In addition, a sole that are development-oriented form part of
focus on historical data also makes it harder for the Bank’s supervisory assessments to better
borrowers with no prior credit history to obtain reflect the socioeconomic impact of DFIs’
finance. To address this, we will facilitate banks’ operations. Examples of such indicators include
access to a wider range of data sources on the financing amount approved to first-time
borrowers, such as real-time payment information borrowers, new jobs created through financed
and analytical tools, to allow for richer and more projects, and funds crowded-in from the private
predictive insights on the credit capacity and quality sector for underserved or new growth segments.
of borrowers. Beyond harnessing transactional Importantly, these key result indicators are
information, we will also work with the industry to intended to be dynamic and are expected
explore broader application of behavioural models to change over time to reflect the prevailing
and tools, such as psychometric assessments, economic priorities and the focus areas for
to complement credit underwriting. To drive all DFIs. As public institutions, it is important for
these efforts, we will facilitate the implementation DFIs to continue to improve on how they report
of common standards to enable data exchange their contribution to the economy, as part of an
within and beyond the financial sector. We will also ongoing commitment to increase transparency
strengthen the digital data governance framework and accountability in serving their mandates.
to ensure responsible and ethical use of data, This would encourage greater market efficiency
including through appropriate safeguards such as in the allocation of economic resources to
consent frameworks. optimise Malaysia’s growth potential.
ii Support measures for distressed borrowers to manage debt burden

n We will facilitate the provision of targeted support to further strengthen the financing ecosystem for
to vulnerable segments that require additional vulnerable SMEs. In this regard, we will ensure
time to recover from cash flow difficulties. This continuous access to effective avenues to seek
will be important to minimise permanent scarring information, financial advisory and redress. We will
from the pandemic. We acknowledge that certain also increase outreach efforts and engagements to
vulnerable segments, both individuals and address the needs as well as improve the overall
businesses, may require longer-term repayment financial health of vulnerable businesses.
assistance to meet their financing obligations. To
support these groups, we will work with AKPK n We will promote the offering of blended finance
and banks to ensure an effective roll-out of solutions to further catalyse the recovery of
repayment relief measures under the Financial businesses. Blended finance instruments combine
Management and Resilience Programme (URUS) different sources of funds – such as philanthropic
and the Financial Resilience Support Scheme funds and traditional bank financing – to lower
(FIRST). Under these programmes, eligible financing costs for firms and reduce leverage.
borrowers affected by the pandemic from the We are pleased to note that some banks have
vulnerable B50 segment1, including individuals already partnered with equity finance providers to
and microenterprises, are able to apply for further pilot blended finance schemes. Looking ahead,
repayment assistance. For URUS, banks have we will work with the financial industry and other
collectively set aside RM1 billion to fund the cost of stakeholders to further scale the offering of these
the reduction in interest/profit for the programme’s solutions. The Bank will also provide dedicated
implementation. At the same time, we will continue concessionary funding for banks to tap into to
to collaborate with the financial industry and AKPK increase the offering of blended finance solutions.
iii Facilitate ‘second chances’ for non-viable borrowers

entrepreneurship by making it easier and less costly
Supporting a holistic economic for SMEs to exit and restart business ventures.
recovery is not limited to helping This will also enable creditors to accelerate efforts
to redeploy and reinvest remaining funds of
viable borrowers survive, but includes the businesses – such as through liquidation of
implementing policies to help non- remaining assets – into new ventures and projects.
viable borrowers with efficient and
orderly exit strategies, whilst ensuring n We will enhance the regulatory framework that
their rights are reasonably protected governs the disposal and purchase of impaired
financing. We will seek to remove the existing
foreign equity limit requirement for buyers to attract
n We will work closely with the banking industry, greater participation, particularly from established
AKPK, the Malaysian Department of Insolvency international players, into the market. With a more
and the Companies Commission of Malaysia diverse buyer market, banks will be able to manage
(SSM) to support efforts to simplify the insolvency impaired financing in a more efficient manner.
regime for SMEs, especially microenterprises. This will continue to be subject to safeguards that
This targeted approach reflects a key observation reasonably protect the rights of impaired borrowers
during the pandemic, where microenterprises and preserve fair opportunities for them to resolve
account for most business closures in Malaysia2. their debt. Non-bank buyers of impaired financing
Enhancements to the current insolvency framework will be required to meet certain eligibility criteria,
are required to reduce the total time and cost to for example, a proven track record of fair debt
complete insolvency proceedings, which may recovery practices. All buyers must also observe
disproportionally impact microenterprises. As part strict conduct requirements upon purchase of the
of the process, we will promote conditions for impaired financing.
Borrowers with a gross household income of RM5,880 or lower, based on the definition by the Department of Statistics of Malaysia.
1
According to the Ministry of Entrepreneur Development and Cooperatives in September 2021, over 37,000 Malaysian businesses have closed since the
2
implementation of the Movement Control Order in 2020, in which over 26,000 or close to 70% comprised of microenterprises.

Strategy 1B
Facilitate transformation to a high-income nation
For Malaysia to achieve a high-income nation status, it is essential to have a vibrant and innovative private sector
that can respond to challenges and seize new growth opportunities. It is therefore critical for the nation to nurture
firms that are more knowledge-, innovation- and technology-based. At the national level, progress has been made
to advance bold and comprehensive reforms on this front, as seen by the adoption of the NIA policy in 2021.
The NIA, which now forms the basis of Malaysia’s investment policies, is expected to drive long-term growth by
building innovation capacity and attracting quality and sustainable investments into new growth areas. This in turn
promotes the creation of high value-added jobs and strengthens domestic linkages.
In general, traditional debt-based financing funded from bank deposits better suits firms with regular repayments
and risks that are well-understood. However, reliance on this type of financing alone may not be sufficient to meet
the diverse needs across a growth firm’s funding lifecycle. This is particularly true for firms that are innovative
and that are engaged in new growth ventures or business transformation exercises. For example, such firms
may operate in emerging industries and may lack established credit histories or predictable revenue streams.
Increasingly, the profile of such firms is often ‘asset-light’, investing more in intellectual property (IP) and software,
compared to tangible assets, which are often traditionally used as collateral for financing from banks.
We also remain cognisant of the longer-term risks to the financial system that may materialise from an
underdeveloped alternative finance ecosystem – namely increased reliance and concentration of financing in the
banking system. This could lead to unsustainable corporate leverage and even excessive risk taking by banks –
which could have systemic implications.
Going forward, greater access to a more diverse range of funding instruments will be key to support the growth
of such firms and promote longer-term financial stability. Alternative finance solutions, which include debt and
equity-based instruments, will play a critical role in complementing bank-led debt financing to fund the economy,
given their relevance across the business lifecycle of firms. These instruments include quasi-equity structures,
asset-based finance, expanded applications of trade-based financing solutions, ECF and peer-to-peer (P2P)
lending, VC financing, and equity investment via angel investors.
Diagram 2:
Available funding sources for businesses by stage of development
Pre-
commercialisation Early stage Growth stage Late stage Matured
Equity markets
LEAP Market, ACE Market, and Main Market
Private placement Bonds/sukuk
Bank financing, trade credit
Alternative equity
Fundraising from individuals (angel investors), VC, and PE
Social finance
Available Fundraising from donations, cash waqf,
funding social investment account, grants, etc.,
sources from individuals and the private sector
Crowdfunding
Fundraising from large groups of investors in exchange for
equity (ECF) or interest (P2P financing, Investment Account
funded financing)
Asset-based finance
Financing that is secured by collaterals
(leasing and factoring)
Alternative finance instruments Mainstream funding sources

Source: Bank Negara Malaysia, the Securities Commission
Chart 1:
Malaysia's alternative finance1 market remains small, compared to regional peer and developed markets
25% 75%
20.6%
20% 60.6%
51.0% 50%
15%
38.0% 12.8%
34.2%
10%
7.9% 8.2% 25%
7.8%
5%
1.7%
0.3% 1.2%
0% 0%
Malaysia Indonesia Australia United Kingdom
Alternative finance as a percentage of GDP (%)

Outstanding financing by financial institutions to SMEs as a percentage of GDP (%)
SME contribution to GDP (%) - RHS
Data is from 2018
1
Alternative finance in this chart includes leasing and factoring finance provided by banks and non-banks, VC, PE, P2P lending and ECF
Source: Bank Negara Malaysia, the Securities Commission, Organisation for Economic Co-operation and Development

As growing the alternative finance ecosystem will require close collaboration and commitment across relevant
stakeholders, we will continue to actively cooperate with the SC and other relevant ecosystem partners, as well
as industry players.
We will also review the microfinance landscape to better assist smaller firms to sustain their recovery from the
pandemic through greater income generation opportunities.
i. Sustain and grow the alternative finance ecosystem and its supporting infrastructure;
ii. Strengthen the regulatory framework and collaboration to promote the development of non-debt finance; and
iii. Reinforce the finance ecosystem for microenterprises for sustainable and inclusive growth.
Beyond traditional debt-based

bank financing, a greater range of
alternative finance sources and
instruments are needed to meet the
diverse needs of firms
i Sustain and grow the alternative finance ecosystem and its supporting
infrastructure
n We will encourage financial institutions’ exploration n We will support and enhance new and existing
of social finance within their business models. infrastructure that provides the necessary
Social finance refers to financial business that is foundation to accelerate the growth of the
focused on social outcomes and uses recognised alternative finance ecosystem:
instruments, such as donations and cash waqf,
to deliver financial products and services, while o First, we will continue to work closely with
generating sustainable income to recipients. relevant agencies, including SSM, to support
Social finance is envisioned to improve societal efforts to expand the collateral base for SME
resilience through affordable and accessible financing, including via the establishment of a
provision of funds and financial protection. In recent centralised collateral registry. This registry
years, social finance has been introduced into is envisioned to allow one-stop registration
the market by blending philanthropic capital with of all secured interest in assets – including
other sources of funds. This allows the creation moveable properties and IP – to be pledged as
of financial products with features such as lower collateral, which in turn, supports more reliable
financing costs and flexible repayment terms to credit appraisals. With greater transparency,
improve access to financing and protection for finance providers will be able to screen for
microentrepreneurs and households. Building potential competing security interests on a
on the progress so far, we will aim to broaden particular asset before granting financing, which
the adoption of such solutions to address other lowers the incidences of disputes over rights
socioeconomic needs, such as affordable housing to property. With more credible and reliable
and healthcare. In this regard, we will continue access to collateral, SMEs will benefit as they
to calibrate the regulatory framework to meet can maximise the value of their tangible and
financial stability objectives, whilst still encouraging intangible assets to obtain additional financing.
innovative and socially responsible finance.
o Second, we will work with CGC to further are treated as a distinct and separate business
increase the coverage and efficacy of referrals source, resulting in a higher tax burden on
to alternative finance on the imSME leasing companies, which impedes the growth
platform. The imSME platform is an online of the market. Through relevant amendments
SME financing and loan referral platform that to the existing legislation, this tax burden could
matches SMEs to finance providers, including be lowered. This will in turn promote the uptake
alternative finance lenders. The platform has of leasing among SMEs, especially for the
seen increased participation in recent years acquisition of machinery and equipment.
from a wide range of alternative finance players,
including factoring providers, VC funds, ECF o Support government-linked investment
and P2P firms. To further enhance the breadth companies (GLICs) and DFIs in accelerating
and depth of finance providers on the imSME the holistic development of the alternative
platform, we will mandate referrals of SMEs who finance ecosystem. There are opportunities
do not qualify for bank financing to alternative for GLICs, in particular, to complement
financiers. With this, we envision that awareness bank financing by enhancing their focus on
and adoption of alternative finance among developmental and catalytical investments,
SMEs will gain faster traction. either directly via holdings in domestic PE,
or indirectly via investments in equity or P2P
n We will continue to perform our role in advising platforms. In addition, studies3 have shown
and informing Government policies to advance that the participation of institutional investors,
alternative finance development, including in the such as GLICs, plays a key role in the growth
following areas: of the alternative finance sector to achieve
critical mass. Going forward, we will advocate
o Review of the taxation framework for for policies that facilitate the GLICs’ and
alternative finance instruments. We will DFIs’ involvement in alternative finance, while
collaborate with relevant agencies and allowing them to continue to meet their existing
stakeholders to study the impact of existing investment and financing mandates.
corporate tax policy design on debt and equity-
based instrument offerings. Through this study, o Greater adoption of trade-based financing
we aim to move towards a more equitable tax instruments, including supply chain financing
regime for debt and equity finance that will programmes, as an alternative form of
encourage the growth of alternative finance. financing for eligible large corporate buyers
We view that such a study is timely, given that and their vendors. Such programmes allow
the current inclination towards debt finance these vendors, who are often SMEs, to receive
due to the existing tax framework may lead to immediate payment for goods and services
further risks to macroeconomic stability. At the rendered to buyers, via the sale of invoices
same time, the bias towards debt finance may to financial institutions. With a more effective
unfavourably discriminate against innovative cashflow management process, small vendors
firms that may be better suited for equity can strengthen their resilience and growth
financing. prospects. We will also support efforts by
corporates to collaborate with the financial
Additionally, we will also advance a more sector to promote the design and offering of
conducive tax regime for leasing providers. supply chain finance solutions to their vendors.
Under existing regulations, leasing activities
3
Source: Cambridge Centre for Alternative Finance (2021), “The 2nd Global Alternative Finance Market Benchmarking Report”.

Diagram 3:
Seamless financing application process via the imSME online platform with a wide range of finance
providers
Simultaneous applications
to multiple banks
Matched with suitable Tailored financial products

financing products and services according to
financing needs
SMEs submit
financing documents
digitally Access to capacity building
programmes and alternative
Unmatched applicants receive finance
further assistance via imSME
financial advisory team
78 financing products from 30 institutions
Diagram 4:
Ecosystem requirements to grow alternative finance
Investible firms Intermediaries Investors
Scale of local SMEs remains Need for greater intermediation – Limited pool of investors – lack risk
relatively small – risk-return mismatch more and larger players appetite, and limited participation
with large institutional investors’ from large institutions
investment mandate
Information infrastructure
Opportunity to improve transparency of information and lower information asymmetry
Talent
Limited pool of talent in the areas of emerging alternative finance, in particular VC and PE – more concerted effort
required to infuse and develop talent onshore
Targeted incentives
Greater alignment and more effective implementation of incentives to facilitate the necessary behaviour in the
ecosystem
As the finance ecosystem

increasingly expands beyond debt-
based solutions, we will work closely
with financial institutions to ensure
that they can participate and offer
non-debt instruments
ii Strengthen the regulatory framework and collaboration to promote development

of non-debt finance
facilitate a more accurate evaluation of the risk
n We will explore measures to make it easier for profile of firms in these sectors. For example, in
banks to offer non-debt-based finance solutions, the United States of America (USA), European
including via the provision of equity-based solutions Union and Singapore, banks have partnered
and through partnerships with other non-debt- with institutional investors to provide venture
based finance providers. We welcome the interest debt solutions for firms as a way for founder
of the industry to offer such solutions and will work entrepreneurs to raise funds, without diluting
closely with the industry and relevant stakeholders share equity.
to address two existing challenges for banks:
n We will work closely with the SC to enhance efforts
o First, we will ensure that our regulatory to develop a comprehensive domestic funding
framework does not pose undue barriers for ecosystem. As non-debt-based finance offerings
banks’ participation in non-debt finance. On often involve both financial institutions and capital
this, we will review relevant aspects of the market intermediaries, we are committed to ensure
regulatory framework to support productive and strategic alignment in the efforts of the Bank and
meaningful participation of banks that remain the SC in this area. To achieve this, we will establish
consistent with financial stability outcomes. a dedicated inter-agency platform, together with
industry players, to coordinate and spearhead the
o Second, we will support the banking industry to development of the alternative finance market.
actively partner with industry players within
the start-up ecosystem, through formal funding We will work closely with other
and expansion of incubation and accelerator
regulators and industry players to
programmes. With closer collaboration with
industry players, banks will be able to deepen
ensure holistic development of the
their understanding of new growth areas and alternative finance market

iii Reinforce the finance ecosystem for microenterprises for sustainable and
inclusive growth
n We will review and improve the microfinancing will also be strengthened to further enhance access
ecosystem, including the Skim Pembiayaan Mikro to finance for microentrepreneurs, including through
(SPM). SPM is a scheme that enables fast and the establishment of a simplified portfolio guarantee
convenient access to business financing of up to scheme.
RM50,000 without collateral from participating
banks. Since the introduction of the SPM in 2006, n We will also support programmes that go beyond
the microfinance landscape has evolved rapidly. finance to assist microenterprises to further move
Prior to 2006, only Amanah Ikhtiar Malaysia (AIM) up the value chain. Focus areas would be on
and Tabung Ekonomi Kumpulan Usahawan Niaga increasing business formalisation through simple,
(TEKUN) provided microfinance. As at 2021, a facilitative, and seamless on-boarding procedures,
total of 11 banks offer microfinance via the SPM. facilitating business matching via supply and
The market is also now more competitive with demand platforms, building microenterprises’
the entrance of new players – such as digital resilience, and subsequently graduating
money lenders – that can offer compelling value microbusinesses to become bigger enterprises
propositions to microenterprises. In view of these that are able to tap wide ranging products offered
developments, we will initiate a holistic review in the financial system. These programmes will be
of the SPM to ensure it remains a relevant and pioneered through the establishment of financial
effective financing tool. This would include an education modules and structured capacity building
assessment on existing features of the SPM and programmes, such as mentoring and business
access gaps, such as for informal and gig workers. advisory support, by AKPK and the FEN.
At the same time, collaboration with CGC and SJPP
Strategy 1C
Ensure post-pandemic resilience of financial intermediation role
The sound foundation of our financial institutions and markets has served as a “shock absorber” to the economy,
by ensuring businesses and households continue to have access to finance despite the challenging economic
conditions.
Our strategies will aim to ensure that the financial intermediation function continues to be resilient and effective
moving forward. In pursuing this, we will build on the lessons learnt in managing past crises. Additionally, we will
also promote better utilisation of insurance and takaful products, as well as enhance supervisory arrangements
over key entities that provide finance.
As conditions in the financial markets are expected to remain challenging going forward, we will continue to
ensure sufficient liquidity and orderly conditions in the foreign exchange and money markets. We also aim
to ensure that financial markets do not increase financial stability risks, by improving the governance and
accountability framework for market players.
i. Preserve funding capacity in the long-term; and

ii. Strengthen vibrancy and resilience of financial markets to act as an absorber of risk.
We will implement measures

to strengthen the financial
intermediation process, so that
access to finance is preserved
i Preserve funding capacity in the long-term

n We will continue to work closely with the financial industry to improve our crisis management responses
to better assist those in need. Drawing on the experience from the AFC, Malaysia has put in place well-
established debt restructuring mechanisms for businesses. These include both court-sanctioned rescue
mechanisms for businesses under the Companies Act 2016, and out-of-court platforms such as the CDRC
and SDRS. Since the AFC, banks have also significantly improved their capacity in managing and resolving
debt, even for multi-lender debt. Moving forward, we will continue to strengthen and advocate for more
holistic debt restructuring arrangements. This includes the infusion of equity or equity-like investments to
assist viable businesses that are highly leveraged. As most policy responses have been focused on providing
credit, distressed businesses facing income shortages are burdened with additional debt – increasing the risk
of insolvency. The debt-to-equity conversion would assist to moderate these businesses’ gearing level and
provide a ‘second chance’ for viable businesses to recover.

n We will promote greater offering of insurance and by mitigating downside risks. In the case
takaful solutions to mitigate risks incurred by of renewable energy projects, this includes
finance providers and firms. The insurance and protection to firms against engineering
takaful industry, including reinsurers and retakaful deficiencies and for the transportation of power-
providers, can contribute to economic growth generating equipment. These solutions will help
and effective financial intermediation through the to drive more investments into key areas and
transfer of risk and mobilisation of funds. Therefore, projects, and ultimately support the economic
we will work with the industry to further diversify transformation aspirations of the country.
and increase risk protection solutions in the
following areas: o Third, we will work with the reinsurance and
retakaful industry so that it supports the risk
o First, we will facilitate the offering of trade diversification needs of the domestic insurance
credit protection solutions. As we look to and takaful market. In this regard, we will seek
enhance trade-based financial instruments in to promote sufficient reinsurance and retakaful
the market, we acknowledge the risks that firms, capacity, especially in critical protection areas
especially SMEs, are exposed to from non- that promote economic growth as well as
payment of goods and services. These risks can household and business resilience. We believe
often lead to financial losses or even insolvency. that these efforts will also in turn support
We believe that insurers and takaful operators Malaysia’s aspirations to become a regional
can lower these risks through the offering of reinsurance and retakaful hub.
trade credit protection products, and in turn,
facilitate these firms to better manage their n We will also enhance surveillance and promote
operations and investments to secure growth. stronger oversight arrangements for non-bank
In this regard, we will work with the industry and players, in particular pension and provident funds
relevant government agencies to address key and deposit-taking-like entities that are systemically
bottlenecks to trade credit protection growth, important. As the financial intermediary landscape
such as the high cost, low underwriting technical continues to diversify beyond the banking
capacity and low market awareness associated sector to include non-bank players with different
with such products. business models and risk profiles, an agile and
holistic approach to risk management is needed
o Second, we will encourage the offering of to mitigate any adverse shocks that could impact
specialised insurance and takaful products the integrity and effective functioning of financial
by building domestic expertise and capacity intermediation. In this regard, we will work closely
to manage risks in emerging growth areas, with key stakeholders, such as the SC, to enhance
such as in renewable energy projects. These the oversight over these non-bank players, so that
protection solutions are expected to assist preventive and corrective actions can be taken in a
firms to increase their exposure to these areas timely manner to address any risk events.
ii Strengthen vibrancy and resilience of financial markets to act as an absorber of

risk
To mitigate excessive volatility in the o First, we will enhance the breadth and depth
of our financial market to improve its ability
global financial system, we will continue
to manage external shocks and to cater to
to enhance the risk mitigation role of the domestic and international economic needs.
domestic financial markets by improving
market liquidity and resilience to shocks We will continue to promote greater adoption of
collateralised transactions within the domestic
money market, particularly to deepen the
n We will promote a liquid and vibrant onshore domestic repurchase agreement (repo) market.
financial market, focusing on strategies that Repo transactions not only diversify financing
enhance the market’s countercyclical role, address accessibility for participants across the system,
real sector needs, and improve capacity for but also allow for more robust and efficient
effective risk management. To this extent, we will allocation of funds across tenors in the money
advance three key strategies: market. To this end, we will pursue greater
diversity of investors in the repo and securities
borrowing and lending markets to include more
non-banking participants, such as insurance
companies and large corporations.
As another area of focus, we will intensify efforts To further strengthen Malaysia’s financial
to develop the onshore derivatives market, market’s resilience to withstand future shocks,
including interest rate derivative products, we will expand safety nets arrangements. To
to increase market liquidity and volume of achieve this, we will continue to pursue strategic
transactions. These measures are expected to bilateral swap arrangements with regional central
promote the development and application of a banks, as well as enhance existing bilateral and
transaction-based alternative reference rate for multilateral safety net arrangements.
Malaysia, in line with global financial benchmark
reform initiatives. Next, we will continue to promote liquidity
in the domestic environmental, social and
We will also enhance our usage of technology governance (ESG) bond and sukuk market,
to improve liquidity and pricing transparency ensuring alignment with national sustainable
in the onshore market. To this end, we envision development aspirations as well as meeting
that a wider adoption of electronic trading international investor demand for ESG-linked
platforms by onshore market participants will financial products. On a broader level, this
further improve price discovery and provide measure is also expected to be a catalyst for a
efficient execution. We will also adopt relevant deep and robust ESG investment ecosystem.
technology to enhance the efficiency of
regulatory reporting in the foreign exchange o Second, we seek to preserve Malaysia’s
(FX), bond and money markets to enable leadership in Islamic finance, through
effective assessment, monitoring, as well as initiatives to deepen the Islamic money and
dissemination of information surrounding risk capital markets.
build-ups in the financial markets.
o Third, we will further strengthen integrity and
Additionally, we will advocate for greater risk professionalism in our financial market by
management practices among resident upholding the highest standards and practices.
businesses, as well as participation by a To this end, we will advocate for a more active
broader set of investors in the derivatives role by market participants in shaping the
market. This will be supported by continuous financial market’s conduct and best practices.
assessment and enhancement to our policies In this regard, the wholesale market code
to facilitate flexibilities for businesses as well of conduct, which sets out principles and
as to encourage utilisation of FX forward standards to be observed by market participants
hedging amongst corporates and domestic in the money and foreign exchange markets, will
portfolio institutional investors. Initiatives to be continuously reviewed and updated, in line
further enhance the investment climate and with global standards.
business efficiency aim to further strengthen the
attractiveness of Malaysia’s position in the global n We will also continue to enhance the integrity
supply chain, besides fostering a conducive and reliability of our domestic financial
environment for foreign direct investment (FDI). market benchmarks, in line with the FSB’s
recommendations. This includes undertaking
periodic reviews to ensure that the financial
benchmark rates remain robust and reflective of an
active underlying market.

Strategic Thrust 2
Elevate the financial well-being of households and
businesses
Financial well-being refers to an individual’s ability to of all. Ongoing reforms to the social protection
meet ongoing financial obligations, stay resilient to framework1 and business ecosystem2 will be
income shocks, achieve future financial goals, and fundamental to secure future resilience.
make financial decisions to improve one’s overall
quality of life. In a similar vein, businesses should be Measures to elevate financial well-being go beyond
in good financial health to withstand unanticipated ensuring access. The desired outcome is for individuals
financial setbacks and capitalise on emerging and businesses to meaningfully benefit from their
opportunities to upscale and secure future growth. participation in the financial system by equipping
households and businesses with suitable and affordable
The pandemic has surfaced, and in some respects, solutions, as well as empowering them with the
exacerbated significant vulnerabilities impacting the financial capability to make sound financial judgments.
financial well-being of households and businesses. Alongside these, it is also important to ensure financial
Addressing these vulnerabilities requires important consumers continue to be treated fairly to inspire
economic reforms to raise the standards of living positive user experience and consumer outcomes.
of households through employment and income-
generating activities, with the financial sector playing With this in mind, we will advance three key strategies
a key role to serve the financial intermediation needs (Diagram 1).

Diagram 1:
Elevate financial well-being
A Enhance financial capability and access, as well as effective usage of

financial services towards greater financial inclusion
w Equip consumers with improved financial capabilities
w Address remaining inclusion gaps, focusing on take-up and meaningful
usage of financial services, especially for the unserved and underserved
segments
B Strengthen protection for households and businesses to build financial

resilience
w Expand market capacity to meet household and business protection
needs against future risks
w Strengthen efforts to address pre-conditions for a sustainable protection
landscape for key risks
C Shape a financial system that upholds fair and responsible dealings with
financial consumers
w Strengthen professional standards, incentive frameworks and disclosure
practices
w Promote an enabling conduct environment for innovation and efficiency
w Pursue regulatory reforms to strengthen the oversight of non-bank
consumer credit providers and promote consistent consumer protection
1
This is broadly categorised into social safety nets, social insurance and active labour market policies. For further details, please refer to the Box Article
titled “A Vision for Social Protection in Malaysia” in Bank Negara Malaysia's Economic and Monetary Review 2020, accessible at
https://www.bnm.gov.my/documents/20124/3026377/emr2020_en_box1_socialprotection.pdf
2
Measures to support businesses include debt resolution schemes for the purpose of business rehabilitation, financing guarantee and insurance for
microenterprises and informal businesses.
Strategic Thrust 2: Elevate the financial well-being of households and businesses
Strategy 2A
Enhance financial capability and access, as well as effective usage
of financial services towards greater financial inclusion
Over the past decade, Malaysia has made significant progress in advancing financial inclusion and introduced
nationwide financial education initiatives to elevate financial capability3. The Financial Education Network (FEN)
was established in 2016 as a cohesive inter-agency platform to lead such efforts, while the National Strategy for
Financial Literacy (2019-2023) outlines strategic priorities to elevate financial literacy and promote responsible
financial behaviour of consumers across all life stages. Through our collaboration with the Ministry of Education
(MOE), financial education modules have also been successfully integrated into all levels of the formal education
system and as elective programmes of higher learning and teacher training institutes – with the Financial Literacy
Core Competency Framework for adults serving as a key reference to effect lasting behavioural change.
In advancing financial inclusion, a range of measures have been undertaken since 2011, thereby expanding
access to and provision of financial services (see Diagram 2). Nonetheless, some financial capability gaps remain
to be addressed (see Diagram 3).
Diagram 2:
Key financial inclusion initiatives and outcomes between 2011-2020
Key financial inclusion initiatives (2011-2020) Key outcomes
Sub-districts1 with access to financial services

Implement comprehensive agent banking
1 2011 2020
framework to expand access to financial services
46% 96%
Expand financial products and services to meet
2
diverse and distinct needs of the underserved
Population living in sub-districts with
access to financial services2
Enhance the role and capacity of Development
3 2011 2020
Financial Institutions (DFIs)
82% 99%
Strengthen monitoring framework for financial
4
inclusion initiatives and outcomes
Customers with active deposit accounts
2011 2020
Enhance the knowledge and capacity of
5 the underserved in using financial services
87% 96%
responsibly
1
With population of at least 2,000 people.
2
Most of the population resides in sub-districts with access to
Source: Bank Negara Malaysia financial services.
3
Financial capability is the combination of attitude, knowledge, skills, and self-efficacy needed to make and exercise money management decisions.
(Source: Center for Financial Inclusion)

Diagram 3:
Remaining financial capability gaps in Malaysia
Malaysia’s financial Financial capability gaps remain across

literacy standing several dimensions
Malaysians exhibit healthy money

management (e.g. budgeting, living within
means) but fall behind in terms of product
knowledge, financial numeracy and planning 64% are unfamiliar 54% have financial
for long-term goals with time value of buffers of less than
money three months if they
Malaysia Average1 OECD1 lose their
income
Financial
68.1 59.2 59.2
Behaviour2
Financial 52.3 62.8 65.8
Knowledge3
Financial
54.9 59.2 61.6
Attitude4
48% do
not know the concept
34% do
Financial not have long-term
Literacy 59.7 60.5 62.0 of risk diversification
savings goals
Score
1
Survey covers 26 countries, of which 12 are OECD
members.
2
Refers to prudent habits such as saving money, budgeting Source: Financial Capability and Inclusion Demand Side Survey 2018, OECD/
expenditure, paying bills on time. INFE 2020 International Survey of Adult Financial Literacy
3
Refers to understanding on products and concepts such
as inflation, interest, compounding and risks.
4
Refers to mindset towards long-term financial planning.
Moving forward, our strategies in enhancing financial inclusion will target initiatives to advance the following:
i. Equip consumers with improved financial capabilities; and

ii. Address remaining inclusion gaps, focusing on take-up and meaningful usage of financial services, especially
for the unserved and underserved segments.
i Equip consumers with improved financial capabilities
n We will advance national collaboration on

financial education initiatives through the FEN We will seek to cultivate sound
by expanding strategic partnerships, accelerating
awareness via digital platforms, and building a
financial decisions4 among
research ecosystem. We will build on the FEN consumers and businesses through
Programmatic Roadmap – with a focus on targeted financial literacy initiatives
Solutions, Access, Awareness and Applications
(see Diagram 4) – to elevate the financial capability
of consumers.
Ability to make rational financial choices through the understanding of financial concepts and take precautions against financial scams as well as
4
behavioural biases (e.g. herd behaviour).

Diagram 4 :
Focus areas and initiatives under FEN Programmatic Roadmap
Focus area 1: Solutions

Consumers have the right information, tools and resources
1.1 1.1 1.2

1.2 1.3 1.3
Provide independent financial Develop inclusive financial Implement financial education
education advice to guide education programmes guided initiatives to improve financial
consumers to make informed by behavioural insights resilience against unexpected
financial decisions events
Focus area 2: Access

Consumers have access to information, tools and resources
2.1 2.2 2.3
Provide credible and user- Guide consumers to the Elevate digital financial literacy
friendly platforms with appropriate avenues to and inclusion, especially
information, tools and enhance financial knowledge among the low-income groups
resources and skills and MSMEs
Focus area 3: Awareness

Consumers are aware that they have access to the information, tools
and resources
3.1 3.2 3.3
Strengthen cross-agency Scale-up partnerships with Increase awareness

partnership in providing the regional stakeholders, media of financial education
financial information, tools and key opinion leaders to programmes and resources
and resources heighten awareness, especially via digital platforms and
among lower income groups, nationwide outreach flagship
youth and MSMEs events
Focus area 4: Application

Consumers are able to apply the knowledge, tools and resources
4.1 4.2 4.3

Implement evaluation Conduct social experiments Conduct periodic nationwide
framework to measure the to assess financial knowledge surveys to measure the
effectiveness of financial progress and remaining gaps progress of financial capability
education programmes among consumers levels in Malaysia and identify
new consumer vulnerabilities

o We will scale up targeted consumer At a broader level, we will also ensure our
engagement measures to elevate financial assessment and monitoring tools – such as the
literacy and inclusion by leveraging innovative FCI – are aligned to international best practices
channels and digital touchpoints. These and remain relevant so that financial capability
measures will help consumers learn to use and inclusion gaps can be addressed in a timely
financial management tools for financial manner. A financial education measurement and
planning, budgeting, and product comparison. impact assessment framework will be developed
Importantly, we envision consumers having to systematically assess the effectiveness
greater knowledge of available financial solutions of financial education initiatives targeting all
in the market, as well as being able to develop segments of the population – from students
a habit of saving, investing, and planning for to adults. Findings from the assessment will
retirement at an early age. We will emphasise be used to continuously improve financial
cultivating sound financial judgement – including education initiatives.
to guard against behavioural biases such as herd
behaviour and susceptibility to financial scams. With better capabilities to accurately identify
Given the increasing digitalisation of financial remaining gaps, we can enhance the efficacy of
services, we will also intensify efforts to enhance our inclusion strategies and help achieve other
digital financial literacy. development goals under the 2030 SDGs. For
instance, we will account for emerging financial
o Annual Key Performance Indicators (KPIs) services channels by building in digital take-up,
will be identified under the four focus areas of quality of digital services, and digital literacy.
the FEN Programmatic Roadmap to measure
and track the impact of financial capability Together, these measures will augment efforts
initiatives more effectively. These annual KPIs by the Bank and FEN members towards more
will be evaluated alongside improvements in the evidence-based policymaking – to prioritise
levels of knowledge, behaviour, and attitude of critical financial capability and inclusion
consumers in Malaysia on financial matters as initiatives and design targeted interventions.
measured under the Financial Capability and
Inclusion (FCI) Demand Side Survey, which is
conducted on a triennial basis.
ii Address remaining inclusion gaps, focusing on take-up and effective usage of

financial services, especially for the unserved and underserved segments
Moving forward, financial inclusion efforts will go n We will continue to strengthen the role of agent
beyond improving access, with an aim towards banks and Mobile Banks (Bank Bergerak)
driving sustained and responsible usage of financial to enable wider access to financial services
products and services. We will strive to enable more through existing networks and facilitate the digital
meaningful financial participation by all in Malaysia on-boarding of consumers in unserved and
so that they are able to save, invest, and build long- underserved areas. This includes the following:
term financial buffers. At the same time, we will
continue to find innovative ways to address financial o Preserve physical financial touchpoints
barriers, particularly for the unserved and underserved to help low-income, elderly, and non-urban
communities. communities – at least for the medium term
– until the necessary levels of connectivity (i.e.
Financial inclusion initiatives will go internet and devices) and digital literacy are
achieved in these segments to support the
beyond improving access – we will transition to digital financial channels.
seek to drive sustained, responsible
and meaningful usage of financial o Expand the range of services of agent banks,
solutions including to facilitate a simplified onboarding
process for customers. We will focus on rural
and underserved areas that lack bank branches
to carry out customer due diligence.
o Explore greater interoperability5 between n We will promote wider adoption of financial

banks. This aims to facilitate access to a wider inclusion KPI disclosures by financial institutions
range of financial services and service providers, to encourage greater alignment with inclusive
including withdrawals and deposits, as well as finance goals. We will improve guidance on how
digital payments through all agent banks, digital financial institutions should define the financially
banks, and Mobile Banks. unserved and underserved, and consider
standardised reporting on KPIs – to enable financial
n We will improve outreach to the “last mile” institutions to express their commitment as socially
unbanked population. On this front, our priority responsible institutions in a systematic manner.
will be to strengthen the roles and capabilities of Such disclosures will serve to demonstrate how
financial institutions to serve financial inclusion financial institutions support the broader ESG goals
objectives. To this end, we will accord focus to: and SDG agendas.
o Increase the impact of DFIs in delivering n We will promote more seamless data sharing
their developmental mandates towards the across the financial sector to further unlock new
financial inclusion agenda (refer to Strategy financial inclusion opportunities through common
1A(i) of the chapter “Fund Malaysia’s economic standards for data sharing (as referenced in
transformation” for more details). Strategy 3A(ii) of the chapter “Advance digitalisation
of the financial sector”). Our immediate focus
o Ensure that digital banks address remaining will be to enable improved access to data on the
market gaps among the unserved and profiles, needs, usage and behaviour of unserved
underserved segments. Performance of the or underserved segments by enabling data sharing
digital banks will be monitored against the pipelines with other partner institutions such as
respective institutions’ financial inclusion microfinance institutions and key government
commitments, which form an essential agencies. In prioritising datasets for sharing with
component of the value proposition for the the industry, we will accord greater priority to high-
granting of digital bank licences. impact, innovative use cases that can address
remaining financial inclusion gaps. For example:
o Liberalise the policy on the establishment
of physical branches for locally-incorporated o Access and needs-based solutions. Facilitate
foreign banks (LIFBs), aimed at enhancing the the development of alternative credit scoring
role of LIFBs in contributing to the needs of models by sharing pooled information on
the domestic economy and furthering financial “thin file” consumers with financial providers.
inclusion objectives. Similarly, more granular data points on
consumer protection needs will also enable
o Facilitate industry efforts to pilot and expand better targeted and affordable microinsurance/
the use of behavioural analytics to engage microtakaful product designs for key consumer
out-of-reach communities more effectively. groups (e.g. B40 group).
This is expected to encourage the development
of more targeted, needs-based products o Consumer choice and financial management.
and to effectively nudge consumers towards While existing financial aggregators
better-informed financial decisions – through predominantly feature products by financial
applications ranging from credit assessments, institutions, this should be expanded to more
identification of protection needs, predictive offerings by other financial providers such as
modelling, product design, and marketing. fintech companies, so consumers can compare
the price and suitability of more diverse financial
products. In this regard, we will facilitate the
integration of product comparison features with
additional value-add services (e.g. financial
management tools and financial advisory),
taking into account the benefits and risks of
such arrangements.
5
Financial services where the issuer and the acquirer are not the same financial institution.

Strategy 2B
Strengthen protection for households and businesses to build
financial resilience
Malaysia’s next stage of economic transformation stands to significantly benefit from a rich and diversified
range of mechanisms that can protect financial consumers. The financial needs of households and businesses
are expected to evolve in several important ways amid wider demographic shifts and technological change.
Individuals will be more discerning and are likely to seek more specific, affordable, and needs-based protection.
Meanwhile, businesses would need solutions that support future resilience against emerging risks. The pandemic
– which underscored the value of financial security in a time of uncertainty and distress – has also generated
greater appreciation and demand for insurance and takaful solutions.
The insurance and takaful landscape must therefore be positioned to support the new demands and play an
effective risk transfer role. This requires a protection landscape that is competitive, efficient, and inclusive.
These three outcomes will shape our strategic priorities in the coming years. We will also leverage the universal
principles under the Value-based Intermediation for Takaful (VBIT) framework, which supports value creation
for stakeholders – consumers, society, and the environment (further details in the chapter “Advance value-
based finance through Islamic finance leadership”). We also see digitalisation as a catalyst for innovation
and competition, including through the use of shared digital infrastructures to address structural gaps in the
ecosystem (further details in the chapter “Advance digitalisation of the financial sector”).
Financial resilience must be supported by a diverse range of factors: sufficiency of income above the living
wage, savings buffers, social protection, diverse wealth accumulation solutions and protection against
unanticipated events. Efforts to support this outcome require a whole-of-government approach. In addition to
protection solutions, our efforts to develop a vibrant funding and financial markets landscape (see the chapter
“Fund Malaysia’s economic transformation”) will also support improved financial resilience of households and
businesses. At a broader level, we will continue to work with other regulatory authorities and relevant agencies –
particularly the SC – to holistically develop a diverse ecosystem of wealth and risk management solutions that will
cater to various life and business stages. This includes solutions for wealth accumulation and preservation (e.g.
fixed deposits, unit trusts, exchange-traded funds), decumulation (e.g. reverse mortgage, deferred annuity), and
for the management of risks (e.g. insurance protection, hedging instruments).
To this end, our efforts here aim to:
i. Expand market capacity to meet household and business protection needs against future risks; and
ii. Strengthen efforts to address pre-conditions for a sustainable protection landscape for key risks.
Public-private risk transfer

mechanisms can help manage
systemic risk implications and
foster more sustainable economic
growth by building future
resilience against risk events
i Expand market capacity to meet household and business protection needs

against future risks
n We will explore public-private partnerships our experience over the last four years, we will take
to develop business risk transfer protection a three-pronged strategy to catalyse further growth
schemes against high-risk, large-scale perils – in this market segment:
serving as safety nets that can be quickly activated
in times of crisis. This builds on lessons learned o Promote greater innovation through
during the pandemic and floods, which revealed a flexibilities under the Perlindungan Tenang
significant protection gap in business interruption framework. ITOs can leverage the flexibilities
risks. The absence of suitable coverage and low granted in the framework in serving the
take-up have left MSMEs vulnerable to weather underserved segments (e.g. offering more
these risk events given their limited financial diverse products, expanding distribution
buffers, and places increased fiscal demands on channels, and introducing innovation through
the Government to provide relief measures. product bundling). We will continue to enhance
the framework to ensure that it remains relevant
A key success factor will be the ability of public- and fit-for-purpose.
private risk pools to cover a wide range of risks,
given the systemic nature of such events. These o Further develop and provide access to
risk pools should capture not only risks arising more granular demand-side information to
from pandemics, but also other emerging ones enable the industry to better identify protection
such as cyber risks, as well as climate-related and coverage gaps, risks and behaviours of the
environmental risks. Challenges due to adverse unserved and underserved segments, such
selection6 and a small domestic consumer pool as the B40 group. This will help facilitate
limit the ability of the private sector market to more informed and targeted policies, and the
expand and provide cover for systemic risks, which expansion of product offerings by the industry.
is observed globally to be particularly evident for
natural disaster perils such as flood risk. To manage o Advance financial literacy initiatives
this, larger public-private national insurance pools to improve consumer awareness and
are typically explored as a more sustainable and understanding of microinsurance and
inclusive solution. Doing so will in turn enable microtakaful protection, as well as benefits
the private sector to be the first line of defence of the Perlindungan Tenang initiative among
to provide protection through risk pooling in the segments that need it the most, through our role
event of such shocks. Meanwhile, the public sector in the FEN.
can redeploy financial resources for longer-term
outcomes, such as to provide financial backing – While we are committed to delivering the above
including through initial capacity development and strategies, private sector supply-side measures
backstop guarantee for excess losses. Importantly, alone would be insufficient. Government support
given the systemic nature of these risks, such (e.g. purchase vouchers and stamp duty exemptions
support by the public sector will provide greater for Perlindungan Tenang products first announced
certainty for insurance and takaful players to design in the 2021 Budget) and the social safety net
and price the right risk coverage. system should serve as a key foundation to widen
protection coverage. Moving forward, we will
n We will continue to support the growth of a continue to work with relevant government agencies
diverse microinsurance and microtakaful to advance alternative means of developing and
market which delivers products that provide funding protection instruments that take into
good protection value, are accessible, affordable, account economic dependencies (e.g. income
simple to purchase, and make claims against. The levels, size of household, age) of target groups.
Perlindungan Tenang initiative was first introduced
in 2017 to spur greater awareness as well as the
development of microinsurance and microtakaful
products. While the increased take-up has been
encouraging, some challenges remain to hinder the
initiative from achieving its potential in benefitting
unserved and underserved consumers. Building on
Occurs when only those facing higher risk purchase insurance, and those less at risk do not.
6

ii Strengthen efforts to address pre-conditions for a sustainable protection

landscape for key risks
n We will continue to pursue further liberalisation
We will adopt a whole-of-ecosystem of the motor and fire tariffs to support an
approach in addressing structural orderly transition to a more market-based pricing
approach. Further liberalisation will serve as an
challenges for key risks in the impetus for ITOs to innovate in products and
insurance and takaful landscape elevate the quality of services, thereby bringing
better benefits and cost savings for consumers.
Even as we do so, we will ensure basic motor
n We will advocate and support comprehensive protection cover remains accessible to all consumer
social protection reforms by the Government segments. Our priorities on this front in the next
to strengthen the financial resilience of society. In five years will seek to complement broader efforts
doing this, we will continue to play an active role to support the transformation of the motor claims
in existing policy platforms such as the Malaysia ecosystem into the desired end state. Digital
Social Protection Council (MySPC) and Economic transformation across the value chain will be key
Action Council (EAC) to recommend best practices in achieving this (see further details of Strategy
for Malaysia. 3A(ii) of the chapter “Advance digitalisation of the
financial sector”).
o We will advocate for a social protection
floor to ensure that all vulnerable groups are n We will focus on measures to address the long-
adequately protected. For comprehensive term sustainability and affordability of private
protection, it is key to draw on the three medical and health insurance/takaful (MHIT)
complementing pillars of social protection cover. Since 2016, the growth of medical claims
reforms: (i) social safety nets; (ii) social (11.6% per year) has outpaced that of medical
insurance; and (iii) active labour market policies. premiums/contributions (9.5% per year), with 2020
Together, these policies will mitigate existing being the sole exception. Coupled with the rising
vulnerabilities and ensure long-term resilience as cost of private medical care in Malaysia – reported
well as economic security. to be among the highest in Southeast Asia8 – there
is likely to be more pressure on the pricing and
o We will assist the Government’s policy sustainability of hospital and surgical insurance/
development efforts through an ongoing gap takaful (HSIT) covers.
assessment on Malaysia’s social protection
framework. For example, we will help to With MHIT players having to frequently reprice their
identify the right private sector solutions as the products to keep up with these rising costs, there
nation progresses further towards voluntary can be significant knock-on effects on the costs
contribution schemes of social insurance (e.g. of premium/contributions to existing policy and
private retirement schemes). certificate holders – thereby making it increasingly
unaffordable. These developments highlight the
o We will support and work with the urgency for early intervention and structural reforms
Government to adopt a comprehensive and to stem the rise in medical claims inflation. From
unified social protection database, with the our global benchmark findings and assessments,
goal of minimising inclusion and exclusion we have identified five key success factors to
errors7. In achieving this, the application of sustainably manage medical costs and claims
technology, inter-agency collaboration, and inflation (see Diagram 5).
continuous capacity building will be key.
7
Inclusion errors refer to aid provision to the non-targeted groups who do not require aid, whereas exclusion errors refer to undercoverage or failure to
aid the targeted groups.
8
Willis Towers Watson (2021), “2022 Global Medical Trends Survey Report”.
Diagram 5 :
Key success factors to sustainably manage medical costs and claims inflation
Minimise information Align stakeholders’

asymmetry incentives
Improve consumers’ ability to

s Better understanding of
s
engage in choosing care stakeholders’ perspectives
Build healthy, competitive
s to converge towards optimal
relationships between outcome
provider, payor, and consumer Balancing objectives without
s
compromising healthcare and
value to patients
Holistic healthcare & Cultivate individual Technology as

regulatory reforms responsibility catalyst of change
Effect broader healthcare

s Incentivise desirable
s Efficient and transparent
s
reforms while ensuring behaviours access to information
inclusiveness Good consumer education
s Adapt to new business and
s
Setting clear regulatory
s and awareness, coupled with care models for higher levels
expectations on good sound financial advice of efficiency
governance and fair practices
With these findings in mind, we will aim to advance efforts to help address these issues, anchored on three
intended outcomes:
o First, we will explore measures that can steer positive change in behaviour among actors in the private
medical healthcare ecosystem so that covers remain inclusive and sustainable for policy and certificate
holders, and financially viable for insurance and takaful providers.
We will work with relevant stakeholders to explore measures that can promote more responsible usage
among consumers, including the feasibility of introducing more meaningful cost-share9 features in HSIT
covers. Based on our observation, cost-sharing features implemented in other countries have effectively
nudged positive consumption behaviour by reducing “buffet syndrome”10 among policy and certificate
holders, and thereby moderate excessive utilisation of medical services that can lead to higher claims
inflation. In Malaysia itself, based on a sample group of HSIT11, we have observed how cost-sharing
features have reduced premiums/contributions by 19% to 68%.
To complement cost-share features, we will also explore the viability of other mechanisms to encourage
active savings and mobilise funds for medical-related expenditures. Such savings mechanisms would
enable better management of longevity risks – funds can be used to fund top-up premiums/contributions,
rises in future medical costs, and out-of-pocket expenses for services not covered under medical covers.
As such, we will explore and assess the suitability of establishing a national-level plan with relevant
agencies and stakeholders vis-à-vis planned healthcare reforms by the Government.
9
Cost-sharing refers to the portion of costs for healthcare services that is shared between the patient and their insurer/takaful operator.
10
A phenomenon where policy and certificate holders seek to maximise the value premiums/contributions paid, thereby consuming medical services
without considering the reasonability or necessity of associated costs. This invariably leads to over-consumption of medical services.
11
Based on a range of products with deductibles between RM300 – RM50,000.

o Second, we aim to support better cost control o Third, we will institute higher standards
management and transparency of the MHIT on business conduct and sales practices,
cover by leveraging digital solutions. This will be including but not limited to: (i) enhancing
pursued in phases, with the first phase focusing product disclosure sheet requirements to
on setting up data protocols among ITOs. improve understanding by consumers and
Ideally, this can also be expanded to standardise encourage informed actions; (ii) strengthening
data protocols among hospitals in collaboration needs-based sales requirements for MHIT
with the relevant stakeholders in the future. products to reduce the risk of mis-selling; and
(iii) providing additional guidance on repricing
As a start, the Bank will facilitate the collection practices to promote a more objective,
and standardisation of MHIT claims data structured and consistent repricing approach for
across the industry via a centralised data the industry moving forward.
exchange platform. This aims to enable greater
industry-wide analysis of medical claims data Managing the long-term affordability and
and pave the way for both the publication sustainability of medical reimbursement cover in
of cost of common medical procedures and Malaysia requires coordination and collaboration
implementation of minimum cost-sharing levels. by all stakeholders in the ecosystem from payors,
We will steer the industry to establish an open healthcare providers, managed care organisations,
data architecture for the platform to lay the the Government and regulators, to consumers.
foundation for ITOs to transmit and analyse the Wider structural reforms and coordinated efforts led
data in a more efficient as well as systematic by the MOH will be necessary to ensure healthcare
way, as part of the broader vision to digitalise services remain inclusive and affordable for all. To
MHIT data. this end, the Bank is committed to working with
MOH and other relevant stakeholders to advance
We will also advocate for greater transparency the above measures together with the industry and
for consumers to make informed healthcare support wider ecosystem reforms.
decisions on their preferred medical provider
and the reasonableness of costs incurred n We will support early financial planning and
– this includes working with the Ministry of access to diverse financial solutions that
Health (MOH) to provide relevant information meet the retirement needs of individuals. We
to the public on the cost of common medical will facilitate the development of new business
procedures. Similar efforts have been observed models and solutions in the retirement planning
to be effective in Singapore, Australia, and the ecosystem that will address coverage gaps, as
USA. well as complement this with our literacy efforts
on financial planning for retirement under the FEN.
Importantly, immediate efforts to rebuild retirement
funds depleted by early withdrawals and relief
measures, together with broader reforms through
the three pillars of social protection, will be key to
strengthen financial resilience for retirement (refer
to ‘comprehensive social protection reforms’ in the
earlier part of this section).
Strategy 2C
Shape a financial system that upholds fair and responsible dealings
with financial consumers
An effective consumer protection framework is critical for an inclusive and enabling financial services landscape –
it creates trust, inspires confidence, and empowers consumers with knowledge of their rights and responsibilities.
This in turn supports more active and productive use of financial solutions by consumers. The acceleration of
digital finance presents tremendous opportunities to enhance the consumer empowerment journey by providing
consumers with more needs-based, personalised solutions and innovative tools to make informed financial
decisions. However, it also introduces new risks that can undermine consumer trust – such as digital fraud,
misuse of personal data, and financial exclusion associated with machine learning biases – which must be
actively mitigated.
Emerging financial service applications enabled by AI/ML such as robo-advisory platforms, aggregator services,
and personal financial management are already gaining market acceptance. In some cases, these platforms
displace the role of agents, in particular those who do not upskill to deliver more value to their customers with
specific, needs-based, and cost-efficient advisory services. This places greater urgency for brick-and-mortar
intermediaries – particularly insurance and takaful agents – to consider how their business practices must evolve
to remain relevant, be it through digital transformation, adoption of higher standards of professionalism, or both.
In navigating the environment ahead, we will foster an enabling regulatory environment that continues to deliver
fair and sound consumer outcomes by addressing undue regulatory frictions, and further empowering consumers.
At the same time, we will also enhance existing consumer protection and market conduct frameworks by
addressing emerging consumer concerns and placing greater accountability on FSPs to safeguard the interests of
consumers. This will be underpinned by our overarching principles in regulating innovation (see Strategy 3B(iii) of
the chapter “Advance digitalisation of the financial sector”).
i. Strengthen professional standards, incentive frameworks and disclosure practices;

ii. Promote an enabling conduct environment for innovation and efficiency; and
iii. Pursue regulatory reforms to strengthen the oversight of non-bank consumer credit providers and promote
consistent consumer protection.
Regulatory and supervisory

enhancements will aim to further elevate
the professionalism of intermediaries
and strengthen market conduct
requirements for fair consumer outcomes
in a digital age

i Strengthen professional standards, incentive frameworks and disclosure practices
n We will ensure a responsive regulatory takaful agents with the necessary skills to
framework for conduct regulation of new and conduct a financial needs analysis and explain
existing intermediaries, particularly in the insurance product risks, we will enhance existing entry-
and takaful business. level qualification requirements. We will also
impose more robust standards on ITOs with
o We will review existing regulatory regard to employee screening and procedures
requirements on the conduct of to ensure agents’ compliance with fit and proper
intermediaries to accommodate new digital requirements.
business models and the expansion of solutions
offered by existing intermediaries – such as o The Bank and the SC will conduct a joint
insurance/takaful agents, brokers and financial review towards rationalising the regulation
advisers (FAs). This will also promote the entry of insurance/takaful and capital market
of credible new digital intermediaries that can intermediaries who provide advisory services
offer innovative solutions to minimise critical to financial consumers and investors into an
protection gaps among underserved segments integrated licensing framework. FAs and financial
by leveraging the outreach potential of their planners (FPs) play an important role in providing
platforms. quality financial and investment advice to
facilitate informed decisions by consumers. At
o We will enhance the bancassurance/ present, FAs which are approved to advise on
bancatakaful policy framework to strengthen insurance/takaful products are regulated by the
consumer safeguards and ensure the fair and Bank, while FPs licensed to advise on capital
responsible promotion of insurance/takaful market products fall under the SC’s purview.
products through the bancassurance channel. However, most FAs also apply for FP licenses
As bancassurance/bancatakaful evolves as a with the SC to offer a full range of advisory
key distribution channel – particularly for life services to their customers. Recognising this,
insurance and family takaful products – we the rationalisation aims to reduce regulatory
see room to better align the conduct and costs from the dual licensing regime of FAs and
sales practices of bancassurance agents with FPs and enable greater efficiency through the
consumer needs. Policy refinements include offering of a wider range of financial advisory
reinforcing internal governance requirements and planning services.
and requiring effective consumer needs-based
identification, targeting, and marketing to be o We will review and strengthen the incentive
conducted moving forward. This aims to ensure frameworks for insurance and takaful
that the bancassurance channel continues to intermediaries to ensure alignment with the
grow in a sustainable and responsible manner, delivery of good consumer outcomes and
with due regard to the interests and needs of experiences. As financial solutions increase
financial consumers. in diversity and complexity, consumers place
higher trust and reliance on intermediaries
n We will elevate the professionalism and integrity to have their best interests in mind when
of intermediaries in dispensing their roles to better recommending products. Our measures will
support informed financial decisions by consumers. aim to promote greater transparency and align
incentive frameworks with these expectations.
o We will enhance professional qualification We will begin by exploring the viability of
and employee screening requirements transitioning from a commission-based to a
to bolster public confidence in the agency fee-based remuneration structure and further
workforce as a fair and trusted distribution improving disclosures to consumers on the
channel. The agency workforce remains a key amount, type, and source of remuneration
bridge between ITOs and consumers, with 41% received by intermediaries.
of business transacted in life insurance/family
takaful business facilitated by the workforce
in 202012. To better equip life insurance/family
Source: Bank Negara Malaysia.

12
n We will enhance the effectiveness of product n We will incorporate conduct risk assessments as
transparency and disclosure requirements by a key component of supervisory engagements
improving accessibility to key product information with financial institutions under the annual
and leveraging behavioural insights to facilitate Composite Risk Rating (CRR)13 review process.
informed financial decisions. To this end, we will: This adds another dimension beyond safety and
soundness criteria, which form the current focus
o Double down on the use of plain language of the CRR communication. FSPs will be assessed
with better navigation (e.g. sign-posting with on their conduct and business practices, as well
bite-sized guides, diagrams) to aid consumers in as the extent to which these practices may cause
distilling the benefits, risks as well as key terms harm to consumers and pose material financial or
and conditions behind the products offered. reputational risks to FSPs. We may also issue public
reprimand as part of our enforcement, with the aim
o Ensure that disclosure requirements continue to reinforce a strong conduct risk culture within
to reflect the changing needs and experiences of FSPs. As FSPs strengthen accountability for and
consumers (e.g. disclosures via digital channels management of conduct risks moving forward, this
for consumers who access financial services is envisioned to further pave the way for the Bank
through mobile devices). to adopt a more principles-based approach to the
regulation of conduct risk.
o Make greater use of behavioural insights
to nudge consumers towards responsible
and optimal financial choices. For example,
interactive designs and mobile-friendly layouts
have been shown to encourage reading by
consumers who are less inclined to review digital
disclosure documents.
13
Represents the FSP’s overall risk profile, level of monitoring and type of supervisory intervention required by the Bank. This in turn determines the
category of deposit protection premium the FSP falls under.

ii Promote an enabling conduct environment for innovation and efficiency
n We will outline minimum parameters for conduct n We aim to facilitate greater ease of product
risk identification and mitigation for new comparison, portability and innovative product
business models and innovations by the industry. offerings by FSPs. In doing so, we will focus our
For example, the use of technology to capture, efforts towards identifying structural reforms that
store, and analyse data must be complemented will promote greater market transparency and
by safeguards to prevent the misuse of customer competition in order to benefit consumers.
data and exposure to cyber security risks. As
the landscape continues to evolve with greater o First, we will ensure the effective
complexity from innovation, FSPs must also regularly implementation of the enhanced Reference
enhance their business continuity and resolution Rate Framework (RRF)14 for a more
framework through clear contingency planning, competitive loan market. The framework which
recovery and exit resolutions to minimise disruption takes effect in August 2022 will introduce the
to financial services delivery and safeguard Standardised Base Rate (SBR) as a common
consumer interests in the event of market exits. reference rate for all FSPs in pricing new retail
financing facilities, where the price of the facility
n We will outline guiding principles and regulatory offered to consumers will be quoted as “SBR +
expectations on the ethical use of emerging spread”. This change aims to make it easier for
technology, in particular AI. Applications of AI consumers to identify the FSPs offering the most
can offer a significant leap in process efficiency competitive rates. We will also pursue parallel
and enrich the customer experience, such as efforts to enable a more efficient and competitive
through automated credit assessments enabled loan market, by exploring measures to minimise
by algorithms and non-traditional indicators such switching costs for consumers.
as social media postings and online purchase
transactions. However, AI algorithms are also o Second, we will facilitate broader efforts
subject to biases that can lead to unfair outcomes towards open and secure data sharing that
or unintended financial exclusion of certain will support ease of product comparison and
consumer segments that are otherwise creditworthy switching by consumers (refer to Strategy 2A(ii)
borrowers. Proper AI governance is important to in this chapter and Strategy 3A(ii) of the chapter
mitigate these instances. Consistent with global “Advance digitalisation of the financial sector”
regulatory developments, our framework will for further details). To this end, we will first focus
therefore aim to emphasise the importance of fair on establishing data infrastructures and a robust
and ethical use of such technologies, underpinned data governance framework.
by robust and transparent AI governance.
We will embark on the development

of a framework on the ethical use
of emerging technology to provide
guiding principles on responsibility,
good governance, transparency,
fairness and ethics
14
The Policy Document on ‘Reference Rate Framework’ was issued on 11 August 2021 and will be effective from 1 August 2022. Further details are
accessible at https://www.bnm.gov.my/documents/20124/938039/Reference+Rate+Framework.pdf.
iii Pursue regulatory reforms to strengthen the oversight of non-bank consumer

credit providers and promote consistent consumer protection
n We will work closely with the MOF and the SC providers that are currently under the purview of
to reform the conduct regulatory architecture various Ministries and agencies, with a view to
to strengthen regulation of non-bank consumer ultimately transition to an integrated structure for
credit providers. This will be achieved through the the regulation of financial conduct in Malaysia.
following:
o Second, the OFS and the Securities Industry
o First, the enactment of the proposed Dispute Resolution Center (SIDREC) will
Consumer Credit Act (CCA). Overlaps in be consolidated into an integrated dispute
responsibilities between regulatory authorities resolution scheme. An independent dispute
and coverage gaps in the supervision of resolution framework is important in our effort
consumer credit providers have led to to ensure effective redress arrangements
inconsistencies in the level of protection are available to financial consumers. The
accorded to consumers. Recognising this, OFS was established to provide dispute
the Bank and the SC, with the support of the resolution related to entities regulated by the
MOF, are leading reforms to close these gaps Bank, while SIDREC under the SC provides
through the enactment of the CCA. Under the dispute resolution services to investors dealing
proposed CCA, the Consumer Credit Oversight with capital market products, services, and
Board (CCOB) will be established to serve as institutions. Consolidation of the OFS-SIDREC
an independent conduct authority to oversee aims to enhance operational synergies of
consumer credit providers which are not dispute resolution schemes given the increasing
currently subject to conduct regulation15. Over complexity of financial solutions and blurring
the longer term, these functions are expected of lines between financial and capital market
to expand to include other non-bank credit activities conducted by FSPs.

The Consumer Credit Oversight Board

will be established as an independent
conduct authority to drive the
enactment of the Consumer Credit Act
and oversee the conduct regulation of
non-bank consumer credit providers
15
Leasing companies, factoring companies, debt collectors, non-bank impaired loan buyers, entities offering Buy Now Pay Later schemes.

Strategic Thrust 3
Advance digitalisation of the financial sector
Digitalisation continues to have widespread implications for financial services. Customers are expecting faster,
more frictionless, and more customised services, with growing awareness about the importance of data privacy
and security. Digital business models are also becoming more ecosystem-driven, whether through a platform or a
network of partnerships. Alongside this, the risk landscape is also being reshaped. Boundaries are blurring, with
new and more complex interlinkages within and beyond the financial sector. The key will be for Malaysia’s financial
industry to take advantage of the upsides of digitalisation, while managing the associated risks – especially those
that may threaten system-wide stability, consumer outcomes, and confidence in the financial sector.
To this end, we will advance four key strategies (Diagram 1).
Diagram 1:
Advance digitalisation of the financial sector
A Futureproof key digital infrastructures

w Leverage key financial infrastructures for Malaysia’s broader digital
ecosystem
w Advance development of an open data ecosystem that is fair and fit for the
future
B Support a more vibrant digital financial services landscape

w Enhance pathways for digital innovations to test, scale and exit
w Support industry-led strategies for digital payments adoption
w Preserve effective oversight of digital business models
C Strengthen cyber security readiness and responsiveness

w Strengthen system-wide cyber security oversight and capabilities
w Strengthen domestic and global collaborative efforts on cyber security
D Support greater use of technology for regulation and supervision

w Leverage technology to further strengthen the Bank’s regulation and
supervision of the financial industry
w Futureproof the Bank’s data strategy
Strategic Thrust 3: Advance digitalisation of the financial sector
Strategy 3A
Futureproof key digital infrastructures
A digital economy is built upon a combination of technological infrastructures (Diagram 2). Financial
infrastructures are a vital part of that. Payment and settlement systems, for example, enable day-to-day
economic activities of households and businesses. As more transactions move to the digital sphere, so does data
– and the vast potential and risks that come with it.
Diagram 2:
Key infrastructure layers in the digital economy
Infrastructure layer Key components (examples)

w Data legislation and regulations
w Consent mechanisms
Data
w Application Programming Interface Collectively, these digital
(API) standards
infrastructures are the
foundation for digital
w Clearing and settlement systems economy use cases (e.g.
Payments (e.g. domestic, cross-border) data sharing, e-commerce)
w Technical standards
Growing significance of
Identity w National digital identity system
digital platforms (e.g.
consumer-to-business,
business-to-business, P2P)
w Internet
Connectivity
w Devices (e.g. smartphones)
Our strategies to futureproof key financial infrastructures will be anchored on several desired outcomes. First,
these infrastructures should be resilient, particularly to enable a secure ecosystem and preserve the continuity of
critical services in adverse situations. Second, these infrastructures should be inclusive – designed to promote
openness and interoperability, reflecting the increasingly diverse profile of stakeholders in the financial landscape,
without compromising the safety of the system. Third, these infrastructures should be adaptable to emerging
developments, including new technologies and operating models.
Broader digital infrastructures, including non-financial ones, are also equally important for financial development
objectives. Similar outcomes like resilience, inclusivity, and adaptability should also guide the development of
these infrastructures. Connectivity and digital identity are some key examples that support greater innovation
and adoption of digital financial services. It will also be important to leverage emerging digital platforms to unlock
major upsides for the financial sector and broader economy.
For the data ecosystem, we will look to advance efforts that can better serve financial consumers. These include
policies and safeguards that support responsible and ethical usage of data, as well as facilitate fair and reciprocal
data sharing initiatives among participants in Malaysia’s data ecosystem. These efforts will be reinforced by
collaborative initiatives with the Government to accelerate the roll-out and enhancements of these broader
infrastructures.
To this end, we will:
i. Leverage key financial infrastructures for Malaysia’s broader digital ecosystem; and
ii. Advance the development of an open data ecosystem that is fit for the future.

i Leverage key financial infrastructures for Malaysia’s broader digital ecosystem

n We will aim to futureproof Malaysia’s payment We will review the RENTAS access
systems – particularly real-time payment
model to cater for more diverse
infrastructures, including real-time gross
settlement systems and retail payment systems,
participation, including by non-bank
focusing on three areas: payment service providers
o A multi-year modernisation exercise for the o Enabling shared payment infrastructures

Real-Time Electronic Transfer of Funds and in Malaysia’s payments ecosystem, including
Securities Settlement (RENTAS). As part of the RPP. These infrastructures allow industry
this exercise, we will review the RENTAS access players to pool resources and share costs, while
model to cater for more diverse participation competing at the product level to better serve
– including by non-bank payment service end-users, such as consumers and merchants.
providers (PSPs), without compromising the A key priority will be to preserve and ensure
operational and cyber resilience of RENTAS. effective implementation of open and risk-based
Besides levelling the playing field between banks access regimes for banks and non-bank PSPs
and non-bank PSPs, this would expand the – whether through direct or indirect participation
range of transactions settled using central bank regimes1.
money – in turn, potentially lowering settlement
risk in the ecosystem. The modernisation Other areas of focus include facilitating the
exercise will also include initiatives to strengthen adoption of common technical standards
the end-to-end risk management in RENTAS, (e.g. ISO 20022, DuitNow QR), and exploring
promote interoperability and efficiency, facilitate opportunities to leverage on shared payment
competition and innovation, as well as to infrastructures for more use cases (e.g. welfare
enhance user functionalities (see Diagram 3 for payments, tax refunds, fraud analytics, trade
summary). finance).
Diagram 3:
Key objectives of RENTAS modernisation exercise
Strengthen resilience
w Review system infrastructure holistically, including to reinforce protection against
cyber threats and enable flexible infrastructure to accommodate future needs
Promote interoperability and efficiency

w Promote alignment with international standards (e.g. industry-wide adoption of
International Organisation for Standardisation (ISO) 20022 by mid-2024, via a
phased approach)
Enable competition and innovation

w Review RENTAS access model to cater for more diverse participation arrangements
w Explore potential central bank digital currencies (CBDC) and distributed ledger
technology (DLT) applications for RENTAS
Enhance user functionality

w Facilitate enhanced real-time reporting and monitoring capabilities, and develop
better tools for analytics under RENTAS iLINK*
w Explore use of API interface to replace existing access channels for RENTAS
* RENTAS iLINK is a web-based system in RENTAS that provides real-time information to participants such as cash position, securities holdings
and settlement status.
1
Indirect participation regimes are where a non-bank payment service provider relies on an intermediary (also known as a ‘sponsor institution’) to
indirectly join the network of a shared payment infrastructure. Some PSPs may prefer the indirect participation regime due to specific commercial or
operational needs.
o Intensifying efforts to enhance cross-border use of multiple CBDC and DLT for cross-border
payments efficiency. We will work with industry settlements.
players to address challenges associated with
cross-border payments, such as high costs, n We will intensify research and experimentation
low speed, limited access, and insufficient on the use of central bank digital currencies for
transparency. This includes linking up the RPP Malaysia’s monetary and financial infrastructures
with other real-time payment systems in the – with the initial focus on wholesale payments – as
Association of Southeast Asian Nations (ASEAN) part of broader efforts to respond to digital currency
region and beyond, focusing on countries developments (refer to the box article “Digital
with strong economic linkages with Malaysia. currencies: A new frontier”).
We will build on the recently established QR
payment linkages with Thailand and Indonesia n The effective delivery of digital financial services
and the ongoing work with Singapore and the also hinges on the availability of common, non-
Philippines. The goal will be to expand the scope financial digital infrastructures that support all
of use cases to P2P fund transfers as well as to sectors of the economy. To this end, there are
establish similar linkages with other countries in three key areas that we will continue to pursue in
the region and beyond. Beyond this region, we cooperation with the Government and relevant
are also working on a proof-of-concept (POC) agencies:
with the Bank for International Settlements (BIS)
Innovation Hub and other partners in Project o The establishment of a national digital
Nexus to develop a multilateral and scalable identity, which requires a coordinated
mode, which aims to connect all real-time collaboration between different government
payment systems globally to facilitate fast and agencies and the private sector. We will
seamless cross-border payments. continue to advocate for speedy and effective
implementation, to cater to both existing and
In addition to real-time payment linkages, we future needs (particularly in relation to the choice
will explore emerging payment innovations of technology for authentication).
for cross-border payments, such as the use
of multi-CBDC arrangements. Unlike existing o Legislative and regulatory reforms to facilitate
correspondent banking arrangements, the end-to-end digitalisation of business processes,
use of CBDC could shorten the transaction such as the use of digital and electronic
chain and free up liquidity that is ‘trapped’ in signatures by the both private and public
correspondent banking accounts – thus resulting sectors.
in faster and cheaper cross-border payments.
We will be embarking on collaborative initiatives o Speed, quality, and affordability of internet
in this regard. This includes building on findings connectivity across the country and segments
from our participation in Project Dunbar, where of society. This in turn will facilitate greater
we have partnered with the BIS Innovation Hub accessibility and usage of digital financial
and other central banks – namely, Reserve Bank services, especially among the underserved
of Australia, Monetary Authority of Singapore, and unserved segments as well as those in the
and South African Reserve Bank – to test the rural areas.
Common digital
infrastructures at the national
level are critical to facilitate
end-to-end digitalisation of
the value chain

Securing a trusted and more

open data regime is key to
unlocking data-driven innovation
ii Advance the development of an open data ecosystem that is fit for the future
n We will continue to facilitate efforts to develop establishing mandates to accelerate progress,

common standards for data sharing in the where warranted, to serve the broader public
financial sector, particularly for high-impact use interest in line with the Bank’s regulatory objectives.
cases. Therefore, we aim to focus efforts on use
cases that: n We will support efforts to establish shared data
infrastructures for the financial sector and its
o Promote greater financial inclusion. broader value chain. This would include emerging
These include facilitating new data sharing digital platforms that enable more seamless and
arrangements, such as on “thin file” efficient connections among various users. As with
consumers – namely, those with little or no other key digital infrastructures, our priority will be
credit history – to enable the development of to promote the adoption of open and interoperable
alternative credit scoring models. This aims to design principles. Examples of these infrastructures
make use of alternative forms of data such as include trade finance infrastructures (e.g. for
payments or utilities data, which can help enrich detection of duplicate invoicing), a medical claims
the creditworthiness assessment. data exchange (e.g. for costs of common medical
procedures) that is accessible by industry players,
o Support consumers to make better informed as well as modernised systems that enable an end-
financial decisions, such as through financial to-end digital experience for motor claims.
planning. These include personal financial
management solutions, providing better For insurance and takaful services in particular,
quality information to consumers, and nudging digitalisation is a key game changer that will bring
consumers towards better financial behaviour the current level of services to new heights –
(such as encouraging habits in relation to especially to create a hassle-free experience for
savings and investments). consumers making motor claims, and address
prevailing pain points in the process. To this
Where specific use cases have been identified end, we will intensify efforts to pave the way
by the industry, we will work closely with the for insurers and takaful operators to advance
relevant stakeholders on the development of digital transformation efforts that will deliver more
common data standards and suitable data sharing integrated, transparent, and seamless processes
arrangements – with the view to provide guidance (see Diagram 4 for desired outcomes for the
on policy and regulation, where appropriate. A motor ecosystem). This includes establishing and
market-led approach will generally be preferred to improving existing infrastructure to support the
provide industry players with sufficient space to adoption of digital technologies across the claims
test and iterate, before converging on standards process. This is a necessary precondition for the full
that are fit-for-purpose. However, we may consider liberalisation of motor tariffs.
Diagram 4:
Digitalisation - A game changer for consumers' claims experience
Pre and during Devices provide real-time Throughout drive, car sensors monitor
commute important information driving habits, provide alerts and take
corrective action for accident prevention
In the event Device transmits Device guides Accident Multiple systems

of accident information on next steps details captured assess damage and
Claims journey to insurer or determine liability
begins without takaful operator
driver initiation
Car fixed to pre- Real time status Consumers given Temporary car and
accident condition updates from options for repairs towing services
and claims paid device on repairs arranged within minutes
Integrated, transparent and seamless process

Right combination of investments in automation, advanced analytics, IoT, open API and AI
n We will continuously review the data governance to synchronise key reforms discussed in flagship
framework for the financial sector, in tandem policy documents (e.g. RMK12, MyDigital) and
with legal developments and technological develop a uniform approach to data governance.
applications to ensure the protection and fair This in turn will provide the necessary
treatment of financial consumers. This includes foundations for the adoption of interoperable
potential enhancements to customer consent standards and formats across sectors.
mechanisms and requirements around the ethical
and responsible usage of data – which are key o Supporting national efforts to develop a data
elements in building a trusted data regime. We protection legal framework. Primarily, we will
expect FSPs to collect, process, and share do this through our membership in national-
personal consumer data in a lawful and secure level committees. We will also collaborate with
manner such that individuals know how their data government agencies in relation to key laws and
will be used and give consent to such usage. Data policies, such as on the drafting of NDSP and
must also be used in ways that do not result in the amendments to the Personal Data Protection
unfair treatment of consumers. Act 2010 (PDPA). The implementation of both
NDSP and amended PDPA will strengthen the
n Beyond the financial industry, we will continue confidence and trust of data users to facilitate
to collaborate with industry players and other greater data sharing in the digital economy as a
stakeholders to enable broader arrangements for whole.
more open and secure data sharing, focused on
three priorities: o Supporting regional level data sharing
initiatives. To this end, we will continue to
o Improving accessibility to public data under collaborate with government agencies and
the Government’s open data initiatives. These industry players to advance best practices with
initiatives, such as the Malaysian Administrative respect to cross-border data flows that are
Modernisation and Management Planning Unit's aligned with global standards and policies. Key
(MAMPU) Open Data platform, provide the focus areas include managing cross-border
potential for various stakeholders – including fraud and money laundering, support risk
the financial sector – to leverage datasets management practices of internationally active
residing in other agencies to build data-driven financial institutions, as well as promote trade
innovations to better serve the public. To make activities, including within the ASEAN region.
data sharing more seamless, it will be important

Strategy 3B
Support a more vibrant digital financial services landscape
Technological changes have taken place at an unprecedented pace in recent years, enabling new applications
in financial services. The pandemic has only accelerated this, as customers sought to access ‘low-touch’ or
completely digital channels – in turn, shaping behavioural norms for financial services.
New technologies can redefine the landscape, pushing the boundaries of what is technically and operationally
possible. Efforts need to be centred on keeping pace and responding effectively to technology.
Our strategies on this front will aim to foster an enabling environment for innovation, while preserving broader
financial system stability. We will also prioritise strengthening institutional arrangements to facilitate greater
collaboration – among industry players, regulators, and other agencies.
i. Enhance pathways for digital innovations to test, scale, and exit;

ii. Support industry-led strategies for digital payments adoption; and
iii. Preserve effective oversight of evolving digital business models.

i Enhance pathways for digital innovations to test, scale and exit
n We will enhance testing mechanisms for financial innovation in two key ways.
First, we will refresh our Regulatory Sandbox. The Sandbox has played an important role in advancing digital
innovation so far, paving the way for critical use cases such as electronic Know-Your-Customer (e-KYC) and
new business models such as digital insurers, P2P family takaful and digital remittance. The Sandbox will
continue to support industry players in bringing financial innovations safely to the market, across different
stages of the innovation cycle.
Enhancements moving forward will aim to accelerate time-to-live testing under the Sandbox. For late-stage
or more mature innovative solutions, this may include accelerated tracks for lower-risk activities or simplified
testing parameters for players who can demonstrate robust governance and risk management practices.
In particular, for financial institutions that we already regulate, we will simplify and reduce the Sandbox’s
gatekeeping processes to test new value propositions and address regulatory implications. This will aim to
allow financial institutions to test their innovations more quickly and flexibly, supplemented with principles-
based testing parameters.
Drawing from our experience with a specialised e-KYC testing track, we will also consider similar accelerated
tracks for other relevant use cases. This would cover activities where the risks are low or can be managed
within standardised and pre-determined boundaries, or where development of relevant policies is already
underway. Such activities include insurance and takaful aggregation activities.
Second, we will look to advance ‘collaborative pilot’ mechanisms for areas where digital transformation
is needed at the industry or national level. This is relevant for financial innovations that are multi-stakeholder
in nature – whereby testing and iteration across the value chain is needed to pave the way towards viable
business models and arrangements for the industry. These include efforts to establish shared utilities or
platforms, promoting common standards, or piloting new industry use cases.
Previously, we have adopted a collaborative approach in promoting common open API standards and
developing Project Spyder2 a DLT-based trade finance solution. In addition to continuing such efforts, we
will also seek to advance efforts towards establishing shared digital infrastructures for insurance and takaful
solutions, as set out in Strategy 3A(ii) of this chapter.
2
Project Spyder is a proof-of-concept developed in 2019 between the Bank and an industry consortium of leading Malaysian banks to detect duplication
of invoice financing and to enable interbank sharing of invoice information in a secure manner. The testing phase of Project Spyder concluded in
November 2019, in which more than 1,700 duplicate invoices were detected from over 290,000 invoices submitted from participating banks.
We are committed to
support digital players that
can address unmet needs,
including through digital
ecosystems
n We will facilitate greater digitalisation of business Additionally, we will finalise a regulatory

models in financial services, prioritising those that framework for digital insurers and digital takaful
can advance greater financial inclusion by better operators in 2022, with the view to significantly
meeting the needs of the unserved and underserved elevate the dynamism of the sector. We aim to
(refer to the chapter “Elevate the financial well-being license new digital players in 2023 that can leverage
of households and businesses”). technologies to deliver value propositions on three
fronts. First, inclusion – to enhance the financial
A key priority will be the smooth implementation resilience of customers whose protection needs
of the digital banking framework. We are are not adequately served. Second, competition
committed to ensure that the policy environment – to transform the existing market structure of
remains relevant, as digital banks and incumbents insurance/takaful through innovative solutions.
continue to evolve their business models (e.g. Third, efficiency – to deliver a more frictionless
through greater partnerships with other FSPs or consumer experience and protection at lower costs.
third parties) to create an ecosystem that will better
address underserved and unserved segments, n We will continue to advocate and support
without jeopardising system-wide stability and the growth potential of Malaysia’s broader
consumer outcomes. A key consideration will be to fintech ecosystem. In addition to broader digital
foster an appropriate regulatory environment for all infrastructures (refer to Strategy 3A in this chapter),
players engaged in banking services – be it through we will also aim to seamlessly integrate our
traditional or digital channels, consistent with the frameworks – such as the Sandbox – with other
principles of parity, proportionality and neutrality initiatives, both at industry and national level. This
(refer to Strategy 3B(iii) in this chapter). will aim to establish an extensive network of key
stakeholders that can connect fintech start-ups to
a comprehensive suite of support facilities, ranging
from capacity-building resources to market access
opportunities. This will build on various existing
initiatives available, including those under the
Malaysia Digital Economy Corporation (MDEC) and
the newly formed Malaysian Research Accelerator
for Technology and Innovation (MRANTI).

We will continue to accord

priority to preserving and further
strengthening confidence in
digital payments
ii Support industry-led strategies for digital payments adoption
n Considering the trajectory of Malaysia’s retail o We will also review existing regulatory policies
payment services landscape, we will advance on digital payments, to ensure their continued
an industry-led approach to digital payments relevance. These include the e-Payment
development. Digital payments adoption has risen Incentive Fund Framework (ePIF), Payment
significantly in Malaysia, accelerated further by the Card Reform Framework (PCRF), and the
recent pandemic. While regulatory efforts over the Interoperable Credit Transfer Framework (ICTF).
past decade have helped catalyse the progress so
far, the retail payments industry is also maturing. In o Efforts will also be made to pave the way
more recent years, we have observed the industry for greater industry leadership and market
becoming highly competitive – especially with the dynamism in relation to the shareholding
entry of new players – resulting in cheaper and of PayNet. Consistent with PayNet’s role as
more innovative services to merchants, including a shared payment infrastructure operator, its
SMEs. New consumer-facing technologies, such shareholding composition will be enhanced to
as biometrics and wearables, have also made be more reflective of the growing diversity in
digital payments more convenient. Against this Malaysia’s payments landscape – with the Bank
backdrop, we expect industry efforts to sustain the progressively divesting its share in PayNet over
momentum of digital payments adoption, as we time.
play an enabling role.
n We are supportive of the broader national
o As Malaysia’s broader economy becomes aspirations for digital payments under MyDigital.
more digitalised, the importance of payment We expect the commitment by federal and state
system operators (PSOs), such as the agencies to adopt cashless payments to play a
Payments Network Sdn. Bhd. (PayNet), Visa pivotal role in creating behavioural shifts towards
and Mastercard, to system-wide stability will greater digital payments adoption. We are
also intensify – along with growing commercial committed to supporting these national aspirations
interest to be PSOs in Malaysia. Given this, and will intensify our awareness-building strategies
we will advance regulations for PSOs, which to that end.
will clarify and align expectations in areas such
as governance, risk management, operational
resilience, and transparency.
iii Preserve effective oversight of evolving digital business models
n We will continuously refine and adapt financial sector policies on digital business models to ensure that
risks are managed effectively. Digital innovation is constantly evolving, shaped by technological change and
commercial breakthroughs. In overseeing such a landscape, we will be guided by a set of key considerations
to determine the way we regulate digital financial services (Diagram 5):
Diagram 5:
Our approach to regulating innovation
Overarching principles to foster a level playing field …
Parity Proportionality Neutrality

Same type of risk, Rigour of regulation and Agnostic to different
same type of regulation supervision calibrated to technologies, systems and
level of risk approaches
Combining activity- and entity-based approaches to regulation …
Activity-based Entity-based
w Where risks are simpler and more well- w Where the combination of activities leads
contained to more complex and potentially systemic
risks (e.g. higher interlinkages with the
financial system)
w Focuses on promoting sound consumer In addition to those outcomes under

outcomes (e.g. disclosures, redress ‘activity-based’ …
mechanisms, privacy) w Ensures prudent risk-taking, including
w Serves to mitigate regulatory arbitrage buffers and limits
w Addresses systemic risks, including cyber
security
w Facilitates orderly recovery and resolution
w Manages interdependencies with
competition
… supported by strengthened collaborative oversight arrangements
aCooperate across sectors aAvoid blind spots and aInformation sharing to

(e.g. telcos, e-commerce) regulatory arbitrage support timely surveillance
and intervention

o We aim to preserve parity, proportionality, Entity-based regulations are appropriate

and neutrality. This means that same types of where certain activities – when combined
risks will be regulated the same way (‘parity’) – as part of a business model – can give rise
but with its rigour and intensity calibrated in a to a more complex risk profile, as well as
way that is commensurate with the level of risk interdependencies that can amplify market-
(‘proportionality’). wide disruptions. This can arise in business
models that combine a range of different
In implementing proportionate regulations, activities that build an existing ecosystem or
we will consider the nature of risks and platform – sometimes described as ‘embedded
public interests. For example, in the area of finance’. In these circumstances, entities may
cyber security, especially where it concerns be subject to a comprehensive set of prudential
critical financial services, the same rigour of expectations, including those on governance,
requirements may be warranted for all players to risk management, financial capacity to absorb
address ‘weakest link’ risks in the financial value losses, and disclosures. Entities that pose
chain – such as where activities are connected systemic risks to the financial system may also
to one another across firms or infrastructures be required to develop actionable recovery
(refer to Strategy 3C in this chapter). Similarly, and resolution plans to protect critical financial
universal consumer redress mechanisms for services. Our licensing approach for digital
financial services will continue to be preserved banks reflects an entity-based approach, guided
for all financial consumers, irrespective of the by our assessment of the underlying risks of the
size or complexity of the FSP. banking business.
We are agnostic to different technologies, We will also intensify our focus on business
systems and approaches (‘neutrality’). continuity and resolution frameworks. A
However, we expect industry players to more competitive and innovative market can
demonstrate that risks associated with a mean dealing with greater unknowns and more
particular technology or innovation are well- dynamic changes in the financial landscape –
understood, and adequately managed. which may include a higher turnover of entities
within the financial services industry. Our
Collectively, we expect these to foster a objective will be to ensure that financial services
level playing field, while ensuring that digital activities can be unwound in an orderly fashion
innovations are supported by sound risk without adversely affecting system-wide stability,
management. while safeguarding consumer outcomes. At the
same time, we will also focus on strengthening
o We will continue to adopt a combination of the credibility of financial institutions’ business
activity- and entity-based regulations3. A continuity plans to ensure that they adequately
purely activity-based approach can be suitable reflect changing operational configurations as
for circumstances where the risks are simpler well as increasing interdependencies on third
and relatively insulated. That is, where frictions parties and shared infrastructures.
from adverse events – such as a business failure
or temporary service interruption – will not have o We will continuously develop and refine
significant spill-over effects on the financial our regulatory guidance on critical digital
system or economy. We will adopt activity-based enablers – such as the use of cloud, AI and ML.
regulations with two key priorities. First, to The focus will be to better align expectations
ensure reasonable protection of sound consumer among industry players to ensure the sound
outcomes, such as through clear disclosures, management of risks and fair treatment of
dispute resolution and redress mechanisms. consumers. We will also seek to address undue
Second, to mitigate regulatory arbitrage, such regulatory frictions or inefficiencies, if any –
that different businesses carrying out the same including in our supervisory processes – to
services are subject to the same rules. support greater agility by financial institutions
in adopting these technologies (refer to the box
article “Medium-term priorities for the prudential
framework and AML/CFT”).
3
Activity-based rules consist of requirements to be met by any institution offering a given service (e.g. lending, payment services). Entity-based rules
consist of requirements imposed on institutions with a specific licence or charter, which in turn sets out the activities those entities are allowed to
undertake.
We will also seek to address undue

regulatory frictions relating to the
use of critical digital enablers, such
as cloud technologies and AI/ML
n We will enhance inter-agency cooperation to better oversee emerging non-bank business models,
focusing on two areas:
o Economic sectors that are increasingly linked to financial services (such as telecommunications and
e-commerce); and
o Regulatory mandates that are closely intertwined with monetary and financial stability within the sphere of
digital finance – particularly competition, data protection, and privacy.
This approach reflects the growing prevalence of digital financial ecosystems (e.g. emergence of digital
lenders, cross-selling of financial products by e-wallet operators, potential partnerships between banks or
insurers with other technology-based service providers).
In enhancing these arrangements, our priorities will be to support the timely identification, monitoring, and
mitigation of risks in the overall financial value chain to financial stability and consumer outcomes. Given the
potentially rapid pace at which digital models may scale, we will also work closely with the relevant authorities
on timely information-sharing and intervention arrangements.

Strategy 3C
Strengthen cyber security readiness and responsiveness
Malaysia’s financial sector is increasingly part of a increasingly more coordinated and sophisticated. Such
broader network of digital relationships – with third party factors compound the challenge of putting in place
service providers (TPSPs), other financial institutions, reliable safeguards.
and devices. As cross-border and global supply chain
linkages deepen, so will new interdependencies and Against this backdrop, a financial system with strong
potential blind spots. In these networks, each of the cyber security fundamentals will continue to be a
nodes is a possible target. Unlike most operational critical priority of the Bank, in turn providing a solid
risks, cyber security breaches in one node can quickly foundation for innovation to thrive.
propagate to others in a short period. The cyber security
strength of any single ‘node’ or institution is therefore Given the characteristics of cyber risk, our strategies
only as strong as the weakest link in that network. are centred around readiness and responsiveness.
While reducing the probability of cyber attacks
With the continued digitalisation of financial services in remains an important objective, we will intensify
Malaysia, cyber security is arguably one of the biggest efforts to mitigate the impact of such attacks. We will
risks. The same digital ecosystems that accelerate also strengthen collaborative arrangements – among
innovation – and all its upsides to consumers and authorities and industry players, domestically and
businesses – also bring risks and vulnerabilities for the internationally. These efforts will aim to develop holistic
financial sector. These include operational disruptions, defences against cyber security risks to the financial
data breaches, fraud, and financial losses. If not sector, including those from telecommunications
managed well, these can have severe consequences infrastructure and potentially critical TPSPs such as
for financial and monetary stability, as well as the cloud operators.
broader economy.
We will seek to advance the following strategies:
Importantly, the cyber security threat landscape is
highly complex, shaped by a range of factors (see i. Strengthen system-wide cyber security oversight
Diagram 6). The tools of cyber criminals are also and capabilities; and
constantly evolving, becoming easier and more ii. Strengthen domestic and global collaborative
inexpensive by the day. The threat is borderless, and efforts on cyber security.
Diagram 6:
Key factors shaping the cyber security landscape
Higher interconnectedness
between financial services Adoption of hybrid
and TPSPs working arrangements
Interconnections Work Arrangements
Modernisation Greater Use of Cloud Evolving Threats
Critical software and More critical systems will Greater frequency,

hardware can quickly be migrated to public or sophistication and entry
become obsolete hybrid cloud points for threats
i Strengthen system-wide cyber security oversight and capabilities
n We will continuously strengthen our oversight of

cyber security risks, with an increased focus on
the broader financial ecosystem. This entails:
o Ensuring that the financial industry adheres

to a strong set of minimum standards on
cyber risk governance and management.
o Intensifying our focus on cyber security

issues arising from critical TPSPs. This will
entail assessing the adequacy of existing policies
in managing TPSP risks and where necessary,
developing additional frameworks to better
protect the financial ecosystem throughout its We will broaden our cyber security
entire value chain. focus at the ecosystem level,
including on critical third party
Further, we will consider the need for
strengthened oversight arrangements to take
service providers
into account interactions between the financial
sector and TPSPs that can give rise to systemic
risks. These include expanding the regulatory
perimeter given the increasing interdependence This will in turn guide our supervisory
with TPSPs. We will consult with key industry assessments of financial institutions, support
players, including critical TPSPs to develop better informed business decisions by the
possible approaches for securing the financial financial sector to manage potential risk
system’s technology linkages with third party concentration of TPSPs or related services, as
providers. well as focus our efforts at the national level to
better safeguard critical infrastructures.
We will also consider integrating TPSPs as part
of intelligence-sharing arrangements established o Expanding the scope and coverage of
in the financial sector (as set out below). ongoing resilience measures. This includes
the implementation of the cyber resilience
n We will intensify sharing of actionable cyber maturity assessment (CRMA) framework, cyber
security intelligence by: drill exercises with other stakeholders and
the Government, and the recently established
o Further developing our capacity to Financial Sector Cyber Threat Intelligence
construct and maintain comprehensive Platform (FinTIP). Across these initiatives, we will
cyber contagion maps of the financial aim to involve a greater range of stakeholders
industry. The aim will be to identify, on a and industry players in the financial sector value
continuing basis, vulnerable points, potential chain. These initiatives are expected to enrich
concentration risks and interconnections in our collective understanding and improve the
the financial sector arising from technological ecosystem-wide ability to proactively mitigate
infrastructures and services that are being used cyber risks.
by financial institutions. These contagion maps
are expected to provide a more granular view
of how the shock from a cyber incident could
spread throughout the financial ecosystem,
including its magnitude and impact.

Cyber security is a shared

responsibility
ii Strengthen domestic and global collaborative efforts on cyber security
n We will continue to support nationwide efforts In our advocacy efforts, we will aim to leverage on
in strengthening digital literacy and cyber widely accepted practices. This would consider
hygiene practices of financial consumers. With global efforts such as those of the FSB’s Cyber
wider adoption of digital financial services, basic Lexicon, ISO, as well as domestic policies of
cyber hygiene practices will be crucial to protect various agencies such as National Cyber Security
consumers from threats such as online scams, Agency Malaysia (NACSA), CyberSecurity Malaysia
financial fraud and identity theft. To this end, we (CSM), Malaysian Communications and Multimedia
will support and work with industry associations, Commission (MCMC), National Institute of
law enforcement agencies and relevant government Standards and Technology (NIST) and others.
agencies to increase cyber security awareness
among consumers so that they can effectively n We will facilitate initiatives to deliver specialised
protect their data and digital devices. cyber security training and certification that
promote skills development and competencies
n We will advocate for greater standardisation in in the financial industry. In doing so, we will work
cyber security and cyber resilience terminology together with relevant government agencies and
at the national level. With a common language industry associations – such as MDEC, CSM,
among all relevant stakeholders, ecosystem-wide NACSA, and Persatuan Penguji Keselamatan Siber
efforts to safeguard and strengthen cyber security (PPKS) – to collect, compare, and assess data to
– whether to share information or to coordinate design a clear roadmap to deepen Malaysia’s cyber
interventions – can be pursued more effectively. security talent pool.
Strategy 3D
Support greater use of technology for regulation and supervision
We are also committed to ensure that we leverage digital technologies to continuously improve our effectiveness
and efficiency – particularly, as a financial regulator and supervisor. This will complement the financial industry’s
shift towards greater digitalisation.
A key consideration in our way forward would be to enhance how we create, collect, capture, synthesise and
share data – aiming to improve the efficiency, integrity, and security of the ecosystem. This reflects the growing
importance of data for a range of functions, from the surveillance of risks and vulnerabilities to facilitating
efficient ways to comply with regulatory policies and requirements. As future enhancements will affect existing
infrastructures, systems, and processes, we will ensure that the path forward is collaboratively mapped out,
together with industry players and other regulatory authorities.
As part of this effort, we will seek to advance the following:
i. Leverage technology to further strengthen the Bank’s regulation and supervision of the financial industry; and
ii. Futureproof the Bank’s data strategy.
i Leverage technology to further strengthen the Bank’s regulation and supervision

of the financial industry
n We will aim to continuously strengthen our expected to enhance risk-based supervision, by
application of technologies – such as AI, ML, providing richer insights in identifying and sizing
natural language processing, and automation – to up risks to financial institutions – and in turn,
deliver process improvements in our regulatory enabling more timely and targeted interventions.
and supervisory functions. This will include:
o Streamlining and facilitating more efficient
o Greater integration of our risk analytics regulatory and compliance processes.
engines to support more holistic surveillance This includes providing a single, technology-
across different datasets – and with it, explore supported applications and submissions
further enhancements in the way we conduct interface, with monitoring capabilities, for all
our oversight activities. In particular, this is authorised financial institutions with the Bank.
ii Futureproof the Bank’s data strategy

o Granularity. We will increasingly leverage the
We aim to reform our data use of geospatial and other technologies to
continuously enhance the granularity of data –
arrangements, including through the
and in turn, drive better insights for our analysis
use of APIs and Open Data initiatives and decision-making. This will build on efforts
so far, such as pilot initiatives that we have
pursued since the onset of the pandemic –
n We will initiate a comprehensive industry where we collect more granular payments and
review on the financial data ecosystem, which financial inclusion data from selected financial
includes the submission, processing and usage institutions, on a near real-time basis. We will
of regulatory reporting and statistical submissions continue to expand the scope of such pilots to
to the Bank. In the next five to ten years, we include other data sets, such as household and
will focus on improving the timeliness, quality, business data, climate-related exposures, and
granularity, and transparency of the data that we green financing data.
collect from the industry. This will be done through
the implementation of a new data collection and o Transparency. We will continue to enhance
sharing arrangement between the Bank, the public access and portability of the Bank’s
financial industry and other partner institutions. various financial and economic data sets
that do not reveal any commercially sensitive
o Quality and timeliness. We will work with information. This can play a role in catalysing
the industry to gradually phase out manual or the broader data community – such as through
semi-automated data submissions and quality Open Data initiatives – to develop new insights
control processes, and explore the use of and identify collaboration opportunities,
APIs to improve the overall data preparation including with the Bank. Where possible, we will
and submission processes. This will reduce also explore the development of dashboarding
compliance costs for financial institutions and capabilities, leveraging on industry data
improve the Bank’s regulatory and supervisory reported to the Bank, for financial institutions to
efficiency. anonymously benchmark their risk profiles and
practices relative to peers.

Box Article

Over the past decade, rapid technological innovation and the increasing pace of digitalisation have
transformed the payment landscape in Malaysia. Digital payment adoption has accelerated, alongside
a more diverse landscape of payment service providers. More recently, digital currencies are gaining
traction – typically leveraging on tokenisation and DLT to facilitate P2P transfers without the need for
intermediaries (Diagram 1). Central banks are also experimenting with central bank digital currencies
(CBDC) – a new form of central bank money that represents a direct liability of the central bank.
Diagram 1:
Comparison of CBDC, stablecoins and non-backed digital assets
Issued by a sovereign body Issued by private entities
Central Bank Digital Stablecoins Non-backed

Currencies (CBDC) (digital assets with value Digital Assets
stabilisation mechanism)
1. Wholesale CBDC: issued to 1. Fiat-backed: value is backed 1. Exchange tokens: used
facilitate settlement between by fiat currency (e.g. Tether) as a means of exchange or
financial institutions for investment (e.g. Bitcoin,
2. Asset-backed: value is
2. Retail CBDC: issued for backed by assets such as Ethereum)
use by the general public commodities or crypto-assets 2. Security tokens: may
(households and businesses) (e.g. Dai) provide rights (e.g. ownership,
to facilitate day-to-day repayment of a sum of money,
3. Algorithm-based: value is
transactions or entitlement to future profits)
supported by protocols that
adjust supply in response 3. Utility tokens: can be
to changes in demand (e.g. redeemed for access to a
Terra) specific product or service
Value is backed by a sovereign Value is backed by assets or No formal backing for its
Store of
value body (e.g. Government, central is stabilised by controlling the value i.e. subject to market
bank) market supply of the stablecoin forces
Likely to be widely used as a May potentially be used as Not likely to be widely used
Medium of means of payment given that it a means of payment subject as a means of payment due to
exchange is a digital representation of fiat to effectiveness of value various limitations (e.g. price
currency stabilisation mechanism volatility)
May be denominated in fiat

Unit of
account Denominated in fiat currency currency (for stablecoin backed Has its own unit of account
by fiat currency)
Developments in this space can spur greater efficiency, inclusion, and vibrancy in the payments and
financial landscape. Increased competition in the retail payment space may result in lower cost, wider
access, and better services. Applications of emerging technologies – such as CBDC, stablecoins, and the
broader DLT infrastructure – may also help address longstanding pain points, particularly those in cross-
border payments (e.g. high costs, low speed, limited access, and insufficient transparency)1.
1
Source: Financial Stability Board (2020), “Enhancing Cross-Border Payments: Stage 1 Assessment Report to the G20”.
Box Article: Digital currencies: A new frontier
CBDC in particular can also serve as a tool to achieve public policy goals, including by advancing
financial inclusion, strengthening monetary policy transmission2 as well as promoting innovation in
payment services. Leveraging its programmable features3, CBDC may also spur other innovations in the
way financial transactions are conducted through the use of smart contracts.
While these developments may offer some opportunities to Malaysia, there are attendant risks that need
to be managed. Depending on the way it is designed, CBDC issuance may impact monetary policy
operations, and amplify operational and cyber risks to the Bank. It may also trigger financial stability
risks if there is a significant shift of bank deposits to CBDC.
Likewise, cross-border usage of foreign-currency denominated CBDC (foreign CBDC) and stablecoins
may have spillover effects to Malaysia. For instance, widespread adoption of foreign CBDC and
stablecoins for payments in Malaysia may heighten currency substitution risk, which may in turn
undermine monetary stability. In addition, foreign CBDC and stablecoins may amplify capital flow
volatility risk. In times of stress, there may be financial stability implications if there is a flight to foreign
CBDC and stablecoins, which may be perceived as a safer alternative store of value. Such risks may
materialise if foreign CBDC and stablecoins bypass traditional intermediaries and controls through which
foreign exchange measures and other regulatory requirements are typically enforced.
As emerging payment technologies evolve, it is vital for us to be in a state of readiness to capitalise

on the opportunities, while mitigating the associated risks. Among others, this includes promoting
interoperability between CBDC platforms and existing payment infrastructures to facilitate seamless
payment flows, ensuring parity and proportionality to support innovation, and establishing the necessary
safeguards, where required.
Keeping in mind these trade-offs, we will adopt a two-pronged strategy:
One, focus on building internal capacity to support informed decisions on CBDC

issuance
At the time of this Blueprint’s publication, we do not have any immediate plans to issue CBDC. In
Malaysia, the financial system continues to support the functioning of the economy, while the existing
monetary and financial policy tools continue to be effective in safeguarding monetary and financial
stability. Moreover, domestic payment systems – including the RPP – continue to be safe and highly
efficient to support the needs of individuals and businesses, and facilitate migration to digital payments.
Nevertheless, we recognise the importance to be proactive in scaling up our internal understanding and
capacity on CBDC. This would have two key benefits:
n Greater clarity on the use cases that offer higher upsides for Malaysia, the potential risks and
implications to monetary and financial stability arising from CBDC issuance, as well as the
appropriate CBDC design and controls to ensure the risks are adequately mitigated; and
n Adequate technical understanding and capacity to build and operate a CBDC platform, should the
need to implement one arise in the future.
To this end, we have commenced a multi-year CBDC exploration through a POC with three phases
(Diagram 2). The POC aims to explore the potential of CBDC to address key problem statements by
prioritising use cases that would offer the higher upsides for Malaysia. This will be done collaboratively
with the relevant stakeholders, including to facilitate interested industry players to participate in the POC.
2
For example, an interest-bearing CBDC may strengthen the monetary policy transmission mechanism.
3
CBDC may be programmed with business logic (e.g. by allowing it to be spent upon fulfilment of certain conditions).

Diagram 2:
Malaysia’s CBDC proof-of-concept roadmap
A multi-year exploration to assess the potential of CBDC to address gaps in the financial sector and
achieve public policy objectives
Phase 1 Phase 2 Phase 3
2021-2022 2022-2023 Beyond 2023
Cross-border
Domestic Domestic retail
wholesale CBDC
wholesale CBDC CBDC
via Project Dunbar
Explore the application of multiple Explore innovative solutions using Explore the role of CBDC in
CBDCs to enhance cross-border CBDC and DLT to enhance and promoting innovation and
payment efficiency via a common future-proof RENTAS enhancing retail payment diversity
shared platform and resilience
n Phase 1 (Cross-border wholesale CBDC): We see the potential of CBDC in addressing the
longstanding frictions in cross-border payment arrangements such as low speed, high cost, limited
access, and insufficient transparency. By enabling instant settlement, CBDC has the potential to
reduce the number of intermediaries and mitigate the need to pre-fund multiple correspondent
banking accounts, thus resulting in faster and cheaper cross-border payments. As a highly open
economy with trade-to-GDP ratio averaging over 130% since 20104, any improvement in the efficiency
of cross-border payments has the potential to create substantial cost savings and productivity gains,
thereby strengthening Malaysia’s trade competitiveness. In this regard, we have collaborated with the
BIS Innovation Hub, Reserve Bank of Australia, Monetary Authority of Singapore, and South African
Reserve Bank to test the use of wholesale CBDC for international settlements via a shared platform
through Project Dunbar (Diagram 3). The POC, which commenced in September 2021, is envisaged to
be completed by March 2022. The interim findings of Project Dunbar have been published on the BIS
portal.
Diagram 3:
Overview of Project Dunbar
Objective
Project Dunbar will develop prototypes for common shared platform that will enable
international settlements using multiple CBDC, allowing financial institutions to
transact directly with each other.
Partners
BIS Innovation Hub, Reserve Bank of Australia, Bank Negara Malaysia, Monetary
Authority of Singapore, and South African Reserve Bank.
Technology
The project will develop multi-CBDC shared platform prototypes on two different DLT
platforms.
Timeline & Deliverables

The project commenced in September 2021 and a summary report is expected to be
issued in March 2022.
4
Source: World Bank
n Phase 2 (Domestic wholesale CBDC): This POC will provide us with an opportunity to reimagine and
future-proof our domestic wholesale payment system, RENTAS. While RENTAS has been operating
at high levels of availability, efficiency and resilience, the application of wholesale CBDC and DLT
has the potential to elevate the domestic wholesale payment system to the next level. Some of the
potential benefits include reducing the single point of failure risk, enhancing the efficiency of liquidity
management, simplifying compliance processes, and enabling new use cases such as the settlement
of tokenised assets.
n Phase 3 (Domestic retail CBDC): Although we already have an efficient real-time retail payment
system – namely, the RPP – we see the potential of retail CBDC in complementing the RPP and
serving as a catalyst to spur greater innovation in the financial sector. Besides enhancing payment
diversity and resilience, CBDC may introduce a smarter version of central bank money which could
support new use cases through its programmable features. By designing it with public interests in
mind, an open and flexible CBDC platform may serve as a shared infrastructure upon which private
sector innovation may flourish. For instance, CBDC can be programmed to streamline compliance
processes and facilitate automatic payment to beneficiaries upon meeting certain pre-defined
conditions. Some examples include automated coupon payment upon bond maturity, automatic
routing of tax payments to the authorities at point of sale5 and automated settlement of vehicle or real
estate purchase upon confirmation of the transfer of legal title. Besides lowering transaction costs, this
has the potential to mitigate counterparty risk and thereby enhancing financial stability.
Two, evaluate implications of the broader digital currency ecosystem to monetary and
financial stability and develop appropriate policy responses
Irrespective of our decision on the issuance of CBDC, the developments in the broader digital currency
space, particularly foreign CBDC, stablecoins, and other digital assets, may pose other challenges and
risks – some of which were highlighted at the onset of this article.
Beyond assessing the opportunities and risks associated with CBDC issuance by the Bank via the CBDC
POC, we will also undertake a holistic assessment of the implications of foreign CBDC, stablecoins,
and other digital assets to monetary and financial stability, with the aim to develop appropriate policy
responses and strategies. This may include:
n Assessment on implications to monetary policy transmission, financial intermediation, capital flow

management, and financial integrity;
n Development of an effective surveillance framework; and
n Strengthening regulatory and supervisory frameworks to mitigate risks without stifling innovation.
This may include developing the appropriate regulatory approach to stablecoins and establishing the
prudential treatment for digital assets in the financial sector.
Through our involvement in various international fora, we will continue to advocate for international
collaboration in developing relevant rules and standards to facilitate interoperability, enhance
cooperative oversight, and promote responsible innovation in the digital currency space to mitigate any
negative spillovers.
5
Source: Bank for International Settlements (2021), “Central Bank Digital Currencies: User Needs and Adoption”.

Being prepared together
In the next five years, we believe that digital currencies will continue to shape the landscape of payment
infrastructures. In particular, CBDC – which would be built with public interests in mind – could have
the potential to serve as an important infrastructure upon which private sector players may innovate to
promote a more efficient, inclusive, and vibrant financial landscape.
While the reach and magnitude of digital currencies’ impact remain to be seen, early exploratory efforts
will be key to ensure that the financial sector can adapt effectively. We are committed to advancing these
efforts for Malaysia, as set out in our two-pronged approach above. Given the complexity and pace of
these developments, we welcome and will continue to support broader collaborative efforts in our journey.
This includes international cooperation efforts to advance the principles of responsible innovation in the
digital currency space, as well as strong public-private collaboration to ensure CBDC infrastructures are
well-designed in addressing current pain points and meeting the emerging needs of the economy.

Strategic Thrust 4
Position the financial system to facilitate an
orderly transition to a greener economy
Climate change and environmental degradation pose unprecedented challenges and opportunities that will
reshape the economic and financial landscape. These include:
n Physical risk. Extreme weather events and a growing list of nations and large organisations
gradual shifts in the climate can damage property that have made carbon neutral or net-zero
and disrupt business activity. Beyond putting emissions commitments. Policies to promote a
livelihoods – and in extreme cases, lives – at risk, circular economy1 are also gaining momentum,
such developments also increase financial risk further contributing to changes aligned with
to financial institutions as the creditworthiness environmental outcomes and longer-term
of materially affected borrowers deteriorate. In socioeconomic prosperity. Shifts in consumer
addition, this would lead to a higher cost of financial and investor expectations, regulatory pressure as
protection or the potential reduction in insurance well as technological advancements present risks
and takaful capacity. Physical risk also impacts to businesses. As an export-oriented economy,
investment and collateral values, where assets can Malaysia will be directly affected by the transition
be destroyed or significantly damaged by climate or efforts by major trading partners. A late or
environment events. abrupt transition to these new trends could leave
exposed businesses with stranded assets that
n Transition risk. The adjustment to a low-carbon experience an unexpected drop in value due to
economy may entail changes to public policies, diminishing demand or regulatory restrictions. For
legislative and regulatory frameworks, technologies financial institutions exposed to such businesses,
or societal responses – with possible consequences these changes may translate into financial and
on the economy and financial sector. Globally, reputational risks that could negatively impact their
the pace of such adjustments is intensifying, with balance sheets and bottom lines.
n Fiscal spillovers. Beyond the losses to the

economy and private finance, the materialisation
of physical and transition risks will also have
cascading effects to public finances. In addition to
the Government’s direct exposures, there is also
the risk of spillovers such as through reduced tax
revenue, higher sovereign spreads and substantial
fiscal spending in the aftermath of a natural
disaster.
n Liability risk. Governments, corporations as

well as company directors and officers may
also face higher prospects of legal action for
failures to adequately address climate-related
and environmental risks. Other than the cost of
liability from successful lawsuits, such litigation can
have a significant reputational impact on affected
stakeholders. These risks may affect financial
institutions that have extended liability protection,
financing or investment to affected companies.
1
A circular economy is an industrial system that is restorative or regenerative by intention and design. The idea is to gradually decouple economic
activity from the unsustainable consumption of finite resources – and in turn, shift to systems designed to remove waste and pollution, keep products
and materials in use and regenerate natural systems. Source: World Economic Forum (2014), “Towards the Circular Economy: Accelerating the Scale-
up Across Global Supply Chains”; Ellen MacArthur Foundation (2020), “Financing the Circular Economy: Capturing the Opportunity”.
Strategic Thrust 4: Position the financial system to facilitate an orderly transition to a greener economy
Diagram 1:
Transmission of climate risk to the economy and financial system
Transition Risk
Physical Risk
w Climate policy
w Extreme weather events
w Technology
w Gradual changes in climate
w Consumer preferences
Economy Economy
w Business disruption w Stranded assets (fossil fuels,
Wider economic deterioration impacting financial conditions
Wider economic deterioration impacting financial conditions

real estate, infrastructure)
Financial system contagion feeding back to the economy
Financial system contagion feeding back to the economy

w Capital scrapping
w Increase in commodity price w Reinvestment and replacement
w Migration w Increase in energy prices
Direct Transmission Channels Direct Transmission Channels

w Lower residential and w Corporate assets devaluation
commercial property values w Lower residential property
w Lower household wealth value
w Lower corporate profitability w Lower household wealth
and increased litigation w Lower corporate profitability
and increased litigation
Financial System Financial System

w Financial market losses w Financial market losses
w Credit losses w Credit losses
w Underwriting losses
w Operational risk (including
liability risk)
Source: Network for Greening the Financial System (2020), “Guide for Supervisors: Integrating Climate-related and Environmental Risks into
Prudential Supervision”.

Against this backdrop, our primary focus will support mechanisms to mobilise mainstream finance
be to promote financial system resilience by in supporting the country’s transition to a greener
continuing our efforts to improve climate-related and economy.
environmental risk management in the financial sector.
Given its central role in allocating and deploying
We will also seek to foster a conducive market economic resources, the financial sector can be
environment for green financing and investment. the catalyst in encouraging players in the Malaysian
Significant and concrete action is required to support economy to adopt more sustainable practices. At the
an orderly transition by Malaysian households and same time, this should promote a just and orderly
businesses, and capitalise on opportunities from transition – that is, one which reinforces early and
shifts to a low-carbon and sustainable economy. At sustained actions to address climate change and
this point, efforts needed to address climate-related environmental concerns, while adequately supporting
and environmental risks – such as reskilling, the affected communities to make the adjustments needed
application of new technology, infrastructure upgrades, and ameliorate short-term impacts.
and the preservation of natural ecosystems – remain
underfunded. In this regard, we will work to align legal To achieve these goals, we will advance the following
and regulatory frameworks where appropriate2, and strategies (see Diagram 2 for an overview).
Diagram 2:
Position the financial system to facilitate an orderly transition to a greener economy
A Integrate climate-related and environmental risks in prudential regulation

and supervision
w Ensure effective implementation of the Climate Change and Principle-
based Taxonomy (CCPT) to facilitate the assessment of climate-related
risks and encourage financial flows towards environmentally sustainable
economic activities
w Align the prudential and supervisory framework to incorporate climate and
environmental risk considerations
w Strengthen practices in the disclosure of climate risk by financial
institutions
B Support orderly transition to a low-carbon economy

w Improve availability, access, and use of data for tackling climate change
and environmental degradation
w Scale up green finance for a more sustainable Malaysia
w Collaborate with government agencies to align the financial sector’s
response with the national strategy towards achieving carbon neutral and
net-zero targets
w Represent emerging market perspectives on sustainable finance
developments and challenges
C Integrate climate risks in the Bank’s internal functions and operations

w Enrich the scope of our macroeconomic and financial stability
assessments to include climate and sustainability effects
w Manage our financial assets with greater consideration to climate and
environmental risk
w Run our physical operations more sustainably
2
Consistent with the Bank’s mandate to promote a sound, progressive and inclusive financial system under section 5 of the Central Bank of Malaysia
Act 2009.
Strategy 4A
Integrate climate-related and environmental risks in prudential
regulation and supervision
Our efforts will be centred on aligning the financial sector regulatory and supervisory framework to account for
climate-related as well as environmental physical and transition risks. This will build on a common framework
for identifying and capturing climate-related and environmental risks across the financial sector to support risk
assessments and disclosures.
To this end, we will continue the work of the Joint Committee on Climate Change (JC3)3 to advance the following
outcomes for the financial sector:
i. Ensure effective implementation of the Climate Change and Principle-based Taxonomy (CCPT)4 to facilitate
the assessment of climate-related risks and encourage financial flows towards environmentally sustainable
economic activities;
ii. Align the prudential and supervisory framework to incorporate climate and environmental risk considerations;
and
iii. Strengthen practices in the disclosure of climate risk by financial institutions.

Standardised definitions are crucial

to facilitate climate risk mitigation
and adaptation activities
i Ensure effective implementation of the CCPT to facilitate the assessment

of climate-related risks and encourage financial flows towards environmentally
sustainable economic activities
n With the issuance of the CCPT in April 2021, our sector-specific5 toolkits for financial institutions to
focus will be to work with the industry through incorporate environmental, social and governance
the CCPT Implementation Group under the JC3 (ESG) risk considerations in their financing
to ensure that the taxonomy is implemented in and investment decisions. Beyond this, we will
a consistent and credible manner. This would also actively pursue broader efforts to promote
include enriching the repository of use cases to comparability, alignment and interoperability with
guide financial institutions in applying the CCPT. ESG-related taxonomies over time – such as the
SC’s Sustainable and Responsible Investment
n In addition to identifying and addressing taxonomy, the ASEAN Taxonomy for Sustainable
implementation issues, we will work to promote Finance and others adopted at the global level,
further integration and alignment with the Value- where appropriate. This will be important to spur
based Intermediation Assessment Framework external financing and foreign investments in
(VBIAF) and its sectoral guides, which provide mitigation and adaptation efforts.
3
The JC3 is a platform to pursue collaborative action for building climate resilience within the Malaysian financial sector. It is co-chaired by the Bank and
the SC, with members comprising senior leaders from Bursa Malaysia, the financial industry and relevant subject matter experts. The JC3 comprises five
sub-committees: Risk Management; Governance and Disclosure; Product and Innovation; Engagement and Capacity Building; and Bridging Data Gaps.
4
The CCPT guidance document was issued on 30 April 2021 to provide a common language for financial institutions to classify and report on climate-
related exposures. Further details are accessible at
https://www.bnm.gov.my/documents/20124/938039/Climate+Change+and+Principle-based+Taxonomy.pdf
5
To date, sectoral guides have been issued for the following six activities/sectors: Palm Oil; Renewable Energy; Energy Efficiency; Oil and Gas;
Construction and Infrastructure; and Manufacturing.

The calibration of regulatory

requirements will take into account the
significant uncertainty, non-linearity, and
forward-looking nature of these risks
ii Align the prudential and supervisory framework to incorporate climate and

environmental risk considerations
n We will strengthen our supervisory expectations We will also pay close attention to ensure that
for financial institutions to identify, measure, safeguards are in place to mitigate against
monitor, and manage exposures to climate- greenwashing. Additionally, the regulatory
related and environmental risks. This will include framework will reflect the critical role and
setting expectations for financial institutions to align expectations for financial institutions to support
business and risk strategies, with their sustainability transition activities. To this end, we will seek to
commitments (such as net-zero milestones and ensure that financial institutions consider the needs
green financing targets) and properly oversee of customers most vulnerable to physical and
transition plans. transition risks and support their efforts to adapt.
n We will review the existing prudential framework n We will also continue to support industry efforts
to align expectations for financial institutions to expand the availability of intermediate and
to increase their resilience to climate and advanced technical programmes on climate-
environmental risks. This will include the related risks to strengthen the capabilities
consideration of relevant adjustments to prudential of financial sector professionals in the area of
requirements (e.g. capital risk weights, the climate and environmental risk management. This
internal capital adequacy assessment process, includes partnering with subject matter experts
counterparty exposure limits, and the treatment of from professional bodies and academic institutes,
collateral), where appropriate. including International Centre for Education in
Islamic Finance (INCEIF), Islamic Banking and
We will work with the industry and wider Finance Institute Malaysia (IBFIM), the Asian
stakeholders to collect data and conduct Institute of Chartered Bankers (AICB), and the Asia
research to inform any adjustments to the School of Business (ASB), to develop structured
prudential framework. The calibration of training solutions relevant to the Malaysian context.
regulatory requirements will consider the unique
characteristics of such risks, including their
significant uncertainty, non-linearity, and forward-
looking nature. Supervisory judgment will therefore
play an important role.
iii Strengthen practices in the disclosure of climate-related risks by financial

institutions
n We will strengthen practices in the disclosure they finance and invest in. Better quality disclosures
of climate-related risk exposures by financial will in turn facilitate financial flows to activities that
institutions. A clear roadmap will be announced support a more sustainable future.
for all financial institutions regulated by the Bank to
make mandatory climate-related risk disclosures
aligned with recommendations by the Task Force
on Climate-related Financial Disclosures (TCFD).
The disclosure of climate-related risks
This aims to provide greater transparency to is a critical step to address climate
markets, sustain financial institutions’ risk and data gaps and accelerate the path to
business strategies that are aligned with climate a net-zero emissions economy
considerations, and encourage cascading effects
to also improve disclosures by the businesses that
Diagram 3:
Overview of the Task Force on Climate-related Financial Disclosures (TCFD)
Thematic areas Recommended disclosures Principles for effective disclosure
w
Board’s oversight of climate risks and
opportunities
w
Management’s role in assessing
Governance
and managing climate risks and
opportunities
w
Impact of climate risks and
opportunities on the organisation’s w
Represent relevant
businesses, strategy and financial information
Strategy planning
w
Specific and complete
w
Resilience of the organisation’s
strategy, taking into consideration w
Clear, balanced and
different climate-related scenarios understandable
w
Consistent over time
w
Comparable among
companies within a sector
w
Organisation’s processes for identifying,
industry
assessing and managing climate risks
w
Reliable, verifiable and
Risk management w
Integration of climate risks into the
objective
overall risk management
w
Provided on a timely basis
w
Metrics used to assess climate risks
and opportunities in line with strategy
and risk management processes
w
Greenhouse gas emissions
Metrics and targets
w
Targets used to manage climate risks
and opportunities, and performance
against targets
Source: TCFD (2017), “Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures”.

Strategy 4B
Support orderly transition to a low-carbon economy
Environmental challenges – including climate change – are highly complex. Addressing them effectively requires
concerted efforts across a wide range of stakeholders, often beyond national borders, and on a sustained basis.
The financial sector has a significant role to play in this regard. The pathway to carbon neutral and ultimately
net zero will require significant green investments and transition finance to be channelled towards initiatives that
reduce Malaysia’s carbon footprint (e.g. renewable energy solutions, rethinking transport, low-carbon cities),
and improve climate resilience (e.g. safeguards against rising sea levels, extreme weather). Businesses will also
need funding to pivot to new business models, recalibrate existing practices, and adopt new technology. In
Malaysia, demand for green investment funds is expected to grow to RM76.2 billion by 20306, and much more
investment will be needed over the coming years to fund Malaysia’s journey to net-zero emissions and broader
sustainability transition. It is thus crucial that financial institutions urgently step up and mobilise capital to support
the increasing demand for green and transition funds in the period ahead.
Meeting this need calls for a significant scaling up of both public and private sources of funding in a manner
that takes full advantage of the growing global demand for meaningful and measurable green investment
opportunities. In this regard, the implementation of the CCPT by financial institutions will play an important role to
help channel funds to investible green projects.
To complement the role of financial institutions, strategies to enhance the landscape (set out in chapter “Fund
Malaysia’s economic transformation”) will also give specific focus to addressing funding gaps for high priority
green projects, where the risks – or opportunities – posed by climate change are particularly prominent for the
Malaysian economy. This includes utilising a diverse array of financing instruments, such as alternative finance, to
meet the various needs of green finance priorities.
Government policies will also need to work in tandem, to remove barriers or incentivise more sustainable
economic models. A clear national policy will provide the foundations for a cohesive reform agenda by public
sector agencies, regulators, businesses, civil society, and consumers alike. This will also need to be supported by
capacity-building efforts to expand access to the necessary skills, knowledge, technologies and data to advance
climate- and environment-related reforms.
We are committed to play our role as a central bank and financial regulator within this broader ‘whole-of-
government’ and ‘whole-of-society’ endeavour. In particular, we will seek to advance the following:
i. Improve availability, access, and use of data for tackling climate change and environmental degradation;
ii. Scale up green finance for a more sustainable Malaysia;
iii. Collaborate with government agencies to align the financial sector’s response with the national strategy
towards achieving carbon neutral and net-zero targets; and
iv. Represent emerging market perspectives on sustainable finance developments and challenges.
6
Source: Ministry of Energy, Green Technology and Water Malaysia (2017), “Green Technology Master Plan Malaysia 2017-2030”.
i Improve availability, access, and use of data for tackling climate change and
environmental degradation
o Increase the speed of insurance and takaful
The availability and transparency claims, by tying pay-outs to predefined climate-
of climate-related data in Malaysia related triggers (e.g. flooding exceeding a
is a prerequisite for effective risk certain threshold) without the need to assess
actual loss or damage to physical assets;
management in the financial sector
o Reliably track emissions to validate sustainability
practices and address risks of greenwashing;
n We will facilitate the application of advanced and
digital tools to address the needs of the financial
sector for accurate, granular and location- o Remotely measure and verify carbon capture
specific data to support climate risk mitigation and in rainforests to provide efficient assurance for
adaptation use cases. For instance, such a broad voluntary carbon markets and emissions trading
range of data can help: schemes.
o Anticipate physical risk incidents (e.g. droughts, n We will work through the JC3 Sub-committee on
floods) and resulting economic losses, and Bridging Data Gaps to collaborate with government
thus inform and reward adaptation efforts agencies, academic institutes, technology firms
through lower insurance premiums / takaful and other relevant players to identify critical data
contributions; needs and create open access to relevant data
sources to continuously improve the availability of
data crucial to climate risk and business strategies.

We will develop specialised

funding mechanisms for green
finance and support efforts to
develop carbon markets
ii Scale up green finance for a more sustainable Malaysian economy

n We will work with industry players such as protection, and access to lower-cost funding for
Cagamas Berhad, CGC and the development climate supporting and transition activities. We
financial institutions to further develop and will also support efforts to involve the financial
expand specialised funding and risk mitigation sector in developing carbon markets – such as the
mechanisms, such as the Low Carbon Transition domestic emissions trading scheme and voluntary
Facility (LCTF) and Green Technology Financing carbon market – in order to promote better pricing
Scheme (GTFS). This will aim to encourage of emissions externalities and increase capital
the scaling up of green finance, particularly for flows to nature-based solutions such as rainforest
SMEs, through targeted credit enhancements and conservation.

We will actively pursue

collaborative strategies to
align our sustainability agenda
with the Government’s policy
and initiatives
iii Collaborate with government agencies to align the financial sector’s response
with the national strategy towards achieving carbon neutral and net-zero targets
n We will continue to align our efforts with targets and timeline to achieve net-zero greenhouse
Malaysia’s broader objective to advance gas emissions.
sustainability, as outlined in the RMK12 and in
accordance with the national strategy set by n To promote synergy between national-level
the Malaysia Climate Action Council (MyCAC). policies and financial sector initiatives, we will
Financial sector policies and initiatives, including also work closely with relevant stakeholders to
those set out above to build financial sector encourage timely and coordinated action in high
resilience and foster a conducive environment priority areas under the forthcoming Malaysia
for green financing and investment, will take into sustainable finance roadmap. Particular focus
account the nation’s commitments under the Paris will be given to securing an orderly transition,
Agreement and the introduction of climate change strengthening physical risk adaptation, as well as
legislation that will formalise the nation’s climate promoting areas of competitive advantage.
iv Represent emerging market perspectives on sustainable finance developments

and challenges
It is critical for global efforts to n Through the Bank’s membership in the Network
for Greening the Financial System (NGFS) and
deliver equitable outcomes involvement in other international standard setting
bodies and platforms, we will seek to encourage
n An inclusive global approach to fighting climate meaningful cooperation to accelerate capacity
change is crucial to deliver equitable outcomes building initiatives and inform global strategies
for all. With this in view, we will continue to and standards on climate risks and sustainable
participate in international efforts to advance finance.
emerging market and ASEAN perspectives
on sustainable finance. Support for emerging n Within the region, we will continue to work
economies to manage transition spillovers from closely with the South East Asian Central
the growing international momentum toward net Banks (SEACEN), the ASEAN Finance Ministers
zero (e.g. reduced market access and job losses and Central Bank Governors, as well as other
due to changes in demand and regulations) will partners to tackle common issues faced in
be particularly important, with many emerging climate and environmental risk management.
economies also challenged by severe physical This includes addressing data limitations across
risks and striving to lift a significant portion of its the region to support better risk surveillance and
population out of poverty. At the same time, many cooperating to further strengthen the regulatory
are home to highly valuable but under-priced and supervisory framework. We will also support
natural capital with potential as global carbon sinks broader efforts in the development of an ASEAN
and biodiversity banks. Green Map to promote a comprehensive and
unified approach to addressing sustainability issues
across banking, insurance, and capital markets in
the region.
Strategy 4C
Integrate climate risks in the Bank’s internal functions and
operations
Within our organisation, we are taking a holistic approach to integrate climate risk and sustainability
considerations in delivering our mandate.
i. Enrich the scope of our macroeconomic and financial stability assessments to include climate and
sustainability effects;
ii. Manage our financial assets with greater consideration to climate and environmental risks; and
iii. Run our physical operations more sustainably.

i Enrich the scope of our macroeconomic and financial stability assessments to
include climate and sustainability effects
We will commit to manage climate scenarios, building on the scenarios developed by

the NGFS.
risk across our policy functions and
reduce emissions from our physical n We will enhance our surveillance and forecasting
operations work to better understand the possible effects
of climate change on key macroeconomic
n We aim to conduct climate risk stress tests for variables. This will include engaging business
the financial industry by 2024. These stress tests leaders and other relevant stakeholders to better
will assess the impact of climate change on the understand the transmission of physical and
balance sheets of financial institutions over the next transition risks to the real sector, including the
30 years and estimate the potential financial losses knock-on effects throughout the supply chain. We
that may result. This will be supplemented by efforts will also seek to better understand the implications
to model the macroeconomic and financial system of these changes on the conduct of monetary policy.
impact of climate shocks based on various climate
Diagram 4:
Overview of scenario analysis process
1 Ensure governance is in place

Integrate scenario analysis into strategic planning and risk management processes
2 Assess materiality of 3 Identify range of 4 Evaluate business

climate risk scenarios impacts
w Market and technology w Scenarios inclusive of a w Input and operating
shifts range of transition and costs
w Policy and legal physical risks relevant w Revenues
w Reputation to the organisation w Supply chain
w Physical risks w Business interruption
Source: TCFD (2017), “Technical Supplement: The Use of Scenario Analysis in Disclosure of Climate-related Risks and Opportunities”.

ii Manage our financial assets with greater consideration to climate and

environmental risks
n We will adopt the recommendations of the TCFD n We will incorporate climate and environmental
and continue to enhance our climate-related risk considerations into our portfolio
financial disclosures, building on disclosures management activities. This aims to manage our
made since 2020. Efforts will be directed at own exposure to climate and environmental risks,
expanding disclosures to include risk management, as well as contribute to the transition towards
metrics and targets relevant to the Bank’s reduced emissions, in a manner that is consistent
operations. with our investment objectives. Our investment
strategies will take into account ESG factors
and principles of Sustainable and Responsible
Investment (SRI) as we consciously manage the
environmental impact of our portfolio in line with
sustainable financial returns.
iii Run our physical operations more sustainably

n In the management of our facilities, we will seek n On currency management, we will continue to
to improve energy efficiency and move toward promote the issuance and usage of longer-
principles of circularity in waste management. lifespan polymer banknotes that will reduce
banknote disposal volumes over time. We will also
explore more sustainable ways to dispose shredded
banknotes while doubling-down on efforts to
accelerate the adoption of e-payments, which will
also promote the broader digitalisation agenda.

Strategic Thrust 5
Advance value-based finance through Islamic
finance leadership
Islamic finance in Malaysia has undergone three broad phases of development over the last four decades –
foundation-building, mainstreaming, as well as driving diversification and innovation (Diagram 1).
Diagram 1:
Phases of development over the last four decades
Driving
Building
Mainstreaming diversification and
foundation
innovation
Development
phases
Financial Sector Financial Sector

Masterplan 2001-2010 Blueprint 2011-2020
Strategic intents w Promote financial w Broaden range of w Addressing

inclusion for solutions beyond ecosystem gaps and
Muslims Muslim community global expansion
w Providing alternative w Achieve scale, w Drive innovative
solutions enhance capacity, solutions and
and widen solutions diversification
Malaysia’s global leadership in Islamic finance is the result of concerted efforts by the Government, financial
regulators, and industry players. Over the years, a wide range of initiatives have been advanced – including
providing the overall enabling legal and regulatory environment, rolling out structural reforms to align strategies,
addressing market frictions and incentives, as well as building long-term capacity. The country has also
contributed to the development of global infrastructures to promote Islamic finance development, such as the
setting up of the Islamic Financial Services Board (IFSB) and the International Islamic Liquidity Management
Corporation (IILM), which are both headquartered in Malaysia.
Today, Malaysia enjoys a mature Islamic finance ecosystem with dynamic and resilient players, diverse products,
and comprehensive enabling infrastructures (see Diagram 2 for an overview).
As Malaysia’s Islamic finance ecosystem continuously adapts to the fast evolving economic and social needs,
efforts remain anchored on Shariah principles – aimed at realising a vision of economic growth that is balanced,
progressive, sustainable and inclusive (Diagram 3).
Building on these achievements, the strategies for the next five years will seek to leverage Malaysia’s well-
developed Islamic finance ecosystem, particularly to:
i. Sharpen Malaysia’s proposition as an international gateway for Islamic finance;

ii. Strengthen policy enablers of value-based finance for greater impact; and
iii. Mainstream social finance.
Strategic Thrust 5: Advance value-based finance through Islamic finance leadership
Diagram 2:
Highlights of Malaysia's Islamic finance ecosystem
Solid growth Key driver

in banking and takaful in global sukuk and Islamic funds
Islamic banking
41.0% Malaysia Malaysia
(RM0.9 tr) 45.1% 33.4%
18.4%
22.7% Global Global
sukuk sukuk
2010 2020 outstanding issuances
Market share of Islamic banking (2020) (2020)
Others Others
system by total financing
54.9% 66.6%
Market share of Takaful
total global 18.2% Malaysia
Islamic financial 12.6% (RM6.0 bn) Global 26.9%
assets (2020) Islamic
2010 2020 funds
Market share of takaful industry Others (2020)
by total net premiums/ 73.1%
contributions
Conducive environment and Diverse players

comprehensive ecosystem offering Islamic financial services
Enabling regulatory and Host to key global Islamic Retakaful Investment Training and
legal frameworks Islamic finance banks operators banks education entities
(e.g. CBA, IFSA, Shariah infrastructures
standards, and Shariah (e.g. IFSB, IILM) 16 3 6 >68
governance framework)
15 6 56 >60
Takaful Development Islamic fund Professional

operators financial managers ancillary services
institutions (e.g. legal, Shariah
Vibrant talent Shariah-compliant firms)
ecosystem serving market infrastructures
global Islamic finance (e.g. BSAS1, BM-i2)
needs
Innovative financial solutions Facilitative

and developments in meeting market infrastructure
sustainability objectives
World’s first SDG sukuk
VBI initiative 40 264
World’s first SRI and Currencies traded
Trading
participants
green sukuk
SRI Sukuk and SRI Shariah-compliant SRI 24/7 RM32.9 bil
Average daily
fund frameworks equity fund Trading hours trading value
1
Bursa Suq Al-Sila` (BSAS) is a commodity trading platform specifically dedicated to facilitate Islamic liquidity management and financing by Islamic
financial institutions.
2
Bursa Malaysia-i (BM-i) is a fully integrated Islamic securities exchange platform with a comprehensive range of exchange related facilities, that
incorporate Shariah-compliant features.
Source: Bank Negara Malaysia, MIFC data estimates, Bursa Malaysia, Malaysian Qualifications Agency, the Securities Commission, Refinitiv

Diagram 3:
Shariah principles underpinning Islamic finance development efforts
Economic growth that is balanced, progressive, sustainable and inclusive
Prevention of
harm and attainment of benefits
Fairness and attainment of excellence (ihsan)
Money is only Wealth creation

Profit comes Assurance of
a store of value must be balanced
through accepting transparency and
and medium of with wealth transfer
and bearing risk traceability
exchange and circulation
Shariah compliance
Diagram 4:
Advance value-based finance through Islamic finance leadership
A Sharpen Malaysia’s proposition as an international gateway for Islamic

finance
w Strengthen gateway-critical capabilities in Malaysia’s Islamic financial
industry
w Promote greater industry leadership
w Facilitate further deepening of Malaysia’s Islamic financial and capital
markets
B Strengthen policy enablers of value-based finance for greater impact

w Develop a more conducive regulatory environment to facilitate the
application of diverse Shariah contracts
w Support the industry’s innovation efforts in developing new value-based
business models, solutions, and practices
w Facilitate greater stakeholder activism through higher quality disclosures
C Mainstream social finance

w Elevate social finance as an integral part of the Islamic finance ecosystem
Strategy 5A
Sharpen Malaysia's proposition as an international gateway for
Islamic finance
The global Islamic finance landscape has evolved significantly. Compared to a decade ago, Islamic finance has
gained greater prominence in the global financial landscape. Global Islamic financial assets have grown from
USD1.6 trillion in 2012 to USD2.7 trillion in 20201. Prospects for further growth remain significant, particularly
within Asia and Organisation of Islamic Cooperation (OIC) countries. These may arise from untapped market
segments, the growing halal business, and demand for more sustainable investments. Alongside the broader
digitalisation of financial services, Islamic fintech opportunities are also growing, particularly in developing
countries with Muslim-majority populations.
The Islamic finance space is thus expected to become more vibrant globally. Increasingly, more countries
are looking to develop domestic markets and expand their footprint overseas. This environment creates new
opportunities to Islamic finance – such as new cross-border partnerships to realise synergies, including through
‘collaborative competition’ (co-opetition) among established and emerging Islamic financial centres.
Against this backdrop, the Malaysia International Islamic Financial Centre (MIFC) vision and strategy continues to
evolve in response to global trends and shifts in real economic needs (Diagram 5).
Diagram 5:
MIFC vision moving forward
Global gateway for Islamic finance markets in Asia and OIC
Connect businesses, investors and other stakeholders to Islamic finance

w
opportunities in Asia and OIC
Specialise in sustainable finance and halal economy
w
Industry-led initiatives, supported by Malaysia’s talent services ecosystem
w
Leveraging existing strengths … and guided by strategic outcomes
Enabling regulatory and legal frameworks Business dimension Leadership dimension
Vibrant marketplace Innovation in Islamic

Diverse products, players and market segments
Inward for diverse Islamic finance solutions for
finance business focus areas
Host to key global Islamic finance infrastructures
(e.g. IFSB, IILM, Centre of Excellence of Islamic
Development Bank (IsDB))
Active tapping of Global influence in
Outward
Vibrant talent ecosystem serving global Islamic global opportunities areas of strength
finance needs (e.g. INCEIF, IBFIM, ASAS1)
Shariah-compliant market infrastructures (e.g.

BSAS, BM-i)
1
Association of Shariah Advisors in Islamic Finance (ASAS).
1
Source: IFSB (2013, 2021), “Islamic Finance Services Industry (IFSI) Stability Report”.

Our strategies aim to sharpen Malaysia’s proposition complete solution for the halal value chain. Notably,
– specifically, to be a global gateway for Islamic the global halal trade has enormous prospects
finance markets in Asia and OIC. This envisions (estimated to be worth USD2.4 trillion in 20242). In
Malaysia connecting Islamic finance opportunities realising this potential, the MIFC community can
in Asia and OIC markets with businesses, investors, play a role to support halal trade and supply chain
and other stakeholders across the globe – including activities (e.g. halal certification and logistics).
partnerships with other jurisdictions to advance Further, financial institutions may also help nurture
areas of mutual interest. We will intensify efforts local halal businesses into global or regional
to facilitate industry-led initiatives that leverage players.
Malaysia’s Islamic finance ecosystem, including its
infrastructure, instruments, expertise, and players. In supporting these developments, we will continue to
This includes efforts to preserve Malaysia’s strengths provide an enabling policy environment. Realising this
as a destination of choice for Islamic fundraising and vision will require Malaysia’s Islamic financial institutions
investment activities, as well as a retakaful hub. to be agile and in a state of readiness to capitalise on
evolving opportunities. Greater industry leadership, as
In positioning Malaysia’s Islamic finance gateway, we well as targeted public-private partnerships, will thus
will pursue two areas of specialisation: be crucial. This includes initiatives in the Islamic finance
talent ecosystem – which will remain vital to drive
n First, a greater focus on opportunities in expertise development for the gateway’s key focus
sustainable finance. This builds on Malaysia’s areas, as well as to export Malaysia’s education and
pioneering work in VBI, which sets out the training services abroad.
frameworks and implementation guidance for a
holistic approach to financial intermediation. There In advancing the sharpened vision for MIFC, our
are also synergies with our efforts on climate and strategies aim to:
environmental risks – a key piece of the sustainable
finance agenda (refer to the chapter “Position the i. Strengthen gateway-critical capabilities in
financial system to facilitate an orderly transition to a Malaysia’s Islamic financial industry;
greener economy”). ii. Promote greater industry leadership; and
iii. Facilitate further deepening of Malaysia’s Islamic
n Second, greater integration of Islamic finance financial and capital markets.
with the halal industry, particularly in financing
halal trade and investment. This supports a more
i Strengthen gateway-critical capabilities in Malaysia’s Islamic financial industry
We are committed to the MIFC o Facilitate Malaysian financial institutions in

agenda and will continue to lead expanding their footprint in Islamic finance
business in other markets – among others by
on regulatory and Shariah fronts, as
engaging with other financial regulators and
well as facilitate market access for authorities, either bilaterally or multilaterally, to
financial institutions enable the wider provision of Islamic financial
offerings;
n We will support efforts to improve the Islamic
financial industry’s global distribution o Promote greater alignment of Islamic
capabilities to better tap opportunities outside of finance-related standards and practices,
Malaysia. These include facilitating Islamic finance including through global standard-setting bodies
activities in other markets by businesses that such as the IFSB and bilateral engagements. We
prefer to use Islamic finance, as well as enabling will also continue to promote mutual recognition
business matching of halal exports with potential of Shariah and regulatory requirements
clients abroad (see Diagram 6). To this end, we globally. This includes enhancing the role and
will enhance Malaysia’s connectivity with potential structure of the Centralised Shariah Advisory
Islamic finance markets to strengthen or realise the Authorities (CSAA) as the platform to pursue
distribution potential of financial institutions. These mutual recognition of Shariah application across
include collaborative efforts to: jurisdictions; and
2
Amount projected based on Muslim spending on halal products and services (Source: Dinar Standard Report (2020), “State of the Global Islamic
Economy Report 2020/21: Thriving in Uncertainty”).
o Facilitate greater visibility of Malaysia’s n Complementing this, we will continue to strengthen

professional services (e.g. Shariah advisory) global partnerships to advance Islamic financial
and talent development institutions (e.g. innovations beyond Malaysia’s borders. These
INCEIF, International Shari’ah Research include joint initiatives with other international
Academy for Islamic Finance (ISRA), IBFIM). This financial centres and multilateral organisations
aims to further export Malaysia’s Islamic finance (e.g. the World Bank, United Nations Development
expertise through cooperative efforts with Programme (UNDP) and IsDB. Such initiatives can
industry players and the relevant government provide critical insights for innovations in Malaysia’s
agencies, such as the Malaysia External Trade Islamic finance ecosystem. Where possible, we will
Development Corporation (MATRADE) and Halal build on these arrangements to identify areas where
Development Corporation (HDC). Malaysia can act as a testbed for innovation to
better meet global Islamic finance needs.
n We will facilitate nascent Islamic financial
innovations, including to accelerate the scaling n We remain committed to refine measures towards
up of new products and services. Our efforts will strengthening Malaysia’s global competitiveness
focus on trade-related solutions, alternative finance as an Islamic finance gateway. A key outcome
models (e.g. blended finance), and sustainable will be to support Malaysia as the preferred
finance. These include repurposing existing seed Islamic finance partner for halal industry growth.
funding provided by the Bank to Islamic fund To this end, we will explore collaboration with the
management companies (IFMCs) to focus on relevant agencies (e.g. MOF, Malaysian Investment
sustainability and innovative-driven mandates. Development Authority (MIDA) and HDC) to
Meanwhile, the growing market for Islamic fintech create stronger links between Islamic financial
will be supported by broader initiatives to foster services and Malaysia’s economic propositions
a vibrant digital financial services landscape – as a leading halal hub, particularly in supporting
including a conducive environment to test and high value-added sectors and initiatives under
scale digital innovations (refer to Strategy 3B(i) of the NIA. We will also continue to work alongside
“Advance digitalisation of the financial sector”). other financial regulators such as the SC Malaysia,
Bursa Malaysia, and the Labuan Financial Services
Authority on complementary strategies that
advance the MIFC agenda.
Greater industry leadership

to take MIFC forward

ii Promote greater industry leadership

n We will enhance mechanisms for greater In the near term, we will work with the industry
industry leadership. This includes the review of to reform existing mechanisms and platforms
the MIFC Executive Committee (EXCO) and MIFC to be more agile, and to better position industry
communication strategies. In the earlier years champions to drive critical agendas for MIFC.
of the MIFC agenda, a strong regulatory role – These include efforts to further:
together with the contribution of the MIFC EXCO
and industry players – formed the key building o Enhance Malaysia’s position as an Islamic
blocks for a conducive and vibrant Islamic finance fundraising and investment destination;
ecosystem.
o Strengthen distributional capabilities and
With the more mature Islamic financial industry expand market access for players to provide
and the rapidly evolving landscape of global Islamic finance solutions;
opportunities, greater industry stewardship is
needed going forward. In sharpening Malaysia’s o Enhance the role of Islamic finance to support
proposition as an Islamic finance gateway, we see Malaysia’s national halal agenda
our role as focusing more on being a facilitator or (see Diagram 6); and
partner in broader industry-wide efforts.
o Encourage cohesive efforts by education and
training providers in sustaining Malaysia’s
position as a leading a knowledge centre for
Islamic finance globally.
Diagram 6:
Examples of possible Islamic finance offerings as a gateway to the halal economy
Complete range of Facilitate market access/ Capacity building,

financial solutions for expansion in and outside technical assistance, and
Malaysian halal investments/ Malaysia via business/ ancillary services (e.g.
companies operations in and outside partner matching certification and export
Malaysia readiness training)
Financial Extensive Ecosystem

solutions network of partners
Complete range of Facilitate market access/ FDI advisory services to

financial solutions expansion into Malaysia companies venturing/
(including fundraising or other markets with relocating to Malaysia
Foreign
activities) for halal Malaysian Islamic
companies
investment/operations: financial institutions’
w in Malaysia (e.g. presence via business/
distributor finance to partner matching
Malaysian contract
manufacturers)
w outside Malaysia (e.g.
sukuk advisory)
iii Facilitate further deepening of Malaysia’s Islamic financial and capital markets3
Efforts to improve Malaysia’s Islamic n We will continue to enhance best practices and
financial and capital markets will be standards in the Islamic money and capital
continuously pursued markets, in line with international standards.
To this end, we will continue to promote
collateralised Islamic transactions and support
n We will continue to promote Malaysia as the the implementation of collateral management
centre for origination, issuance, and trading for practices. As part of these efforts, we will work
sukuk. This will leverage our comparative advantage towards the recognition of additional Islamic
in sukuk advisory, particularly in structuring and instruments for close-out netting (e.g. collateralised
innovation, to tap into the growing sukuk trends, commodity murabahah) and greater adoption of
including sustainable sukuk in line with MIFC’s Islamic derivatives agreements (tahawwut) among
focus areas. This will also be achieved through interbank players4.
the continued deepening of the domestic hedging
market and strengthening of domestic players’ n We will continue to review and improve the
global distribution capabilities to further enhance structure of Islamic instruments to promote
Malaysia’s ability to attract a larger and broader greater Shariah acceptance and to leverage
foreign investor base. Such efforts will further the diversity of Shariah contracts. This includes
improve Malaysia’s propositions as the preferred efforts to promote a wider range of Islamic risk
destination for Shariah-compliant fundraising management tools, including derivatives, to
and investment, complemented by a facilitative investors. We envision that this measure will lead to
framework for the issuance and subscription of increased vibrancy in the Islamic derivatives market,
ringgit and foreign currency-denominated sukuk in and subsequently contribute to the expansion of
Malaysia. Islamic finance and share of Islamic financing in the
onshore financial market.
Strategy 5B
Strengthen policy enablers of value-based finance for greater
impact
As we advance SDGs in financial development, the Islamic financial sector can play a key role. Islamic finance
is uniquely aligned to the growing calls for a responsible and ethical model for financial services, given the
fundamental values of Shariah to prevent harm and promote the attainment of benefits – including to improve
well-being through wealth preservation, wealth circulation, and justice.
Building on this, we introduced key frameworks in recent years – namely, VBI in 2017 and VBIT in 2021.
Complemented by implementation guidance, these frameworks outline how Islamic finance solutions and
practices can support a more positive impact on the economy, community, and environment.
Islamic financial institutions have made steady progress since then, delivering value-based finance solutions
to a growing number of individuals and businesses in recent years (see Diagram 7). The impact of VBI is also
evident in the halal industry. Halal businesses have benefited from the comprehensive suite of financial solutions
in expanding their operations beyond the domestic market, complemented by the provision of business advisory
and ancillary services.
In the coming years, we envision Islamic financial institutions leading efforts to widen the adoption of value-
based finance across the financial sector. These efforts include developing innovative solutions and refining
business practices towards greater social, economic, and environmental resilience – underpinned by more refined
measures of value and impact.
3
These efforts will be pursued in collaboration with the Securities Commission, consistent with the Capital Market Masterplan 3 (CMP3).
4
Initiatives will be geared towards greater adoption of tahawwut agreements by interbank participants and consequentially expanding the adoption to
other markets and players.

Diagram 7:
Overview of VBI-aligned financing (2017 - 2020)
2017 2020
Launch of VBI
A significant portion of the VBI-aligned financing went to:
Over RM94.2 billion

disbursed by Islamic banks towards
VBI-aligned financing
Micro SMEs Public infrastructure Affordable housing
(43%) (26%) (21%)
Accounts for nearly 26% >4500 renewable energy and green

of total financing approved from
2017-2020 projects worth >RM8.8 billion
Source : Association of Islamic Banking and Financial Institutions Malaysia (AIBIM)
To advance these goals, we will prioritise these strategies:
i. Develop a more conducive regulatory environment to facilitate the application of diverse Shariah contracts;
ii. Support the industry’s innovation efforts in developing new value-based business models, solutions, and
practices; and
iii. Facilitate greater stakeholder activism through higher quality disclosures.
We will continue to provide

the appropriate regulatory
facilitation for value-based
finance implementation
i Develop a more conducive regulatory environment to facilitate the application of

diverse Shariah contracts
n We will strengthen the Shariah regulatory n We will explore the potential recalibration of
framework by aligning the application of Shariah existing regulatory requirements to cater to
contracts with their underlying wisdom (hikmah). the broader application of taàwun6 in takaful,
This includes setting out clear considerations guided by clear Shariah parameters. Current
for financial institutions in adopting certain regulations restrict the transferability of distributable
arrangements in exceptional circumstances (e.g. surplus across takaful funds in meeting the capital
ceding takaful risk to conventional insurers or requirements, due to separate fund ownership for
reinsurers due to capacity constraints), in line with takaful. An expanded application of taàwun may
the hajah principle5. allow distributable surplus in a takaful fund that
is sufficiently capitalised to support shortfalls in
Another desired outcome is for financial institutions another takaful fund.
to use more diverse Shariah contracts, thereby
enabling value-based finance to serve a wider Similarly, a broader application of taàwun can
range of economic and social needs. This may call facilitate greater wealth circulation within the
for a reconsideration of the use of tawarruq, which wider society. For example, the utilisation of
is presently a dominant Shariah contract for Islamic distributable surplus in takaful funds may potentially
finance products in Malaysia’s Islamic finance be channelled to provide takaful coverage to
landscape. lower-income households, thereby improving their
financial resilience. In exploring the expansion of
taàwun application, key considerations would
be to promote benefits to the wider society while
preserving the interest of takaful participants.
ii Support the industry’s innovation efforts in developing new value-based business

models, solutions, and practices
Innovation, particularly through n We will support further diversification of

Investment Account (IA) offerings by Islamic
the application of diverse Shariah banks to mobilise new sources of funds for value-
contracts, is an important enabler of based financing, particularly initiatives to develop
value-based finance impact-driven investment instruments. This
will align with broader efforts to facilitate banks’
participation in non-debt finance solutions (refer
n We will leverage enhancements to our existing to Strategy 1B(ii) of Chapter 1 – “Fund Malaysia’s
Regulatory Sandbox to better support innovations economic transformation”). IA offerings will need
in value-based finance, such as novel applications to evolve in tandem with heightened competition
of Shariah contracts. These may arise from in the retail investment space, such as from equity
enhancements to the scope of hajah application, as crowdfunding and P2P financing. To widen the
well as from the exploration of new takaful business appeal of IA offerings among eligible investors, there
and operating models that support value-based is a need to expand the underlying assets beyond
protection (refer to Strategy 3B(i) of Chapter 3 – traditional financing. This may include mezzanine
“Advance digitalisation in the financial sector”). financing and venture capital that can also support
VBI-aligned outcomes. We will continue to support
industry efforts on that front where appropriate,
including addressing regulatory frictions and
facilitating the development of enabling infrastructure
as necessary.
5
Hajah is defined as a situation of exigent circumstances that will cause or is likely to cause a detrimental impact to the safety and soundness of the
Islamic financial institution, thus necessitating a temporary exception of a Shariah ruling. Further details are accessible in Bank Negara Malaysia’s
“Discussion Paper on Hajah” (2021) at https://www.bnm.gov.my/documents/20124/938039/Discussion_Paper_on_Hajah.pdf.
6
Taàwun refers to the cooperation among a group of individuals in a takaful fund to mutually aid each other to meet certain needs, as collectively agreed
in a takaful contract. Further details are accessible in Bank Negara Malaysia's “Shariah Resolution in Islamic Finance” (2010) at
https://www.bnm.gov.my/documents/20124/761709/shariah_resolutions_2nd_edition.pdf/3844f55b-8c0f-23ea-5a2a-9874dc416a04?t=1593546461329.

iii Facilitate greater stakeholder activism through higher quality disclosures
key stakeholders (e.g. investors and financial

With meaningful disclosures on consumers) to evaluate, compare, and differentiate
impact, stakeholders can engage with practices in VBI, thereby nudging the industry to
financial institutions to address gaps continuously improve – while supporting greater
and accelerate impact creation visibility of VBI initiatives beyond national borders.
In collaboration with the VBI Community of

n We will facilitate improvements in the quality Practitioners and VBIT Steering Committee, we
and usefulness of impact-based disclosures. will provide guidance on reporting metrics
Our priority here is to foster a more conducive that improve comparability and quality of
environment for effective stakeholder activism. disclosures. A major focus will be to mitigate the
risks of ‘impact washing’7 in these disclosures,
As it stands, Islamic financial institutions do provide which may include reducing the subjectivity or
impact-based disclosures under VBI. However, there discretion accorded to certain parameters. The
is room to further enhance the information published guidance will also be aligned to the phases of
– including to ensure the continued integrity of such individual financial institutions’ VBI implementation
disclosures, and better align them with international which vary across the industry8, and complement
practices. This can foster greater confidence among the existing principles of sustainability reporting and
initiatives on climate risk disclosures.
Strategy 5C
Mainstream social finance
Social finance refers to financial structures or business commercially-driven financial solutions, and corporate
models that aim to deliver tangible social outcomes by social responsibility (CSR) activities of the financial
mobilising philanthropic capital. Such capital includes institutions to promote greater social resilience. To
Islamic social finance instruments such as sadaqah unlock the potential of social finance, our strategies will
(donation), waqf (endowment) and zakat (alms). In aim to elevate social finance as an integral part of the
recent years, we have worked closely with the industry Islamic finance ecosystem.
and other stakeholders to encourage greater integration
of social finance in the Islamic finance ecosystem. The box article on “Social finance as an enabler of
social development in Malaysia” provides further
Moving forward, social finance is envisioned to details on the social finance landscape as well as
play a greater role, with Islamic finance leading recommendations for other social finance actors on
the way – complementing public sector finance, unlocking the potential and amplifying the impact of
social finance.
We will adopt a nurturing approach

to support financial institutions’
explorations to better integrate social
finance within their businesses
7
Impact washing refers to a process in which impact-focused initiatives claim to be aligned with and contribute to development objectives without
providing meaningful supporting evidence (Source: OECD (2021), “OECD-UNDP Impact Standards for Financing Sustainable Development”).
8
There are four phases towards the full implementation of VBI, namely Initiating, Emerging, Engaged, and Established (Source: Bank Negara Malaysia
(2018), “VBI Implementation Guide”).
i Elevate social finance as an integral part of the Islamic finance ecosystem

n We will support a range of finance models n We will enable a conducive regulatory
that promote impactful social outcomes. This environment for diverse business models,
reflects how the optimal models can vary based recognising that social finance solutions could
on individual player’s risk appetite, capacity, be delivered by a range of players. This builds on
operational readiness, business strategy, and the emerging interest among industry players to enter
this space – be it as part of their existing mandates
evolving needs of financial consumers. Generally,
(e.g. DFIs), CSR initiatives by incumbents, or as
we will facilitate both blended finance and
a primary business strategy (e.g. digital players
funding escalator models (refer to Diagram 1 with a social finance focus). As part of these
under the box article, “Social finance as an enabler efforts, we will facilitate the roll-out of more
of social development in Malaysia”) to address impactful pilot programmes for social finance.
financing, investment, and protection gaps in These programmes will guide efforts to enhance
the market. This may include providing funding regulations to remain fit-for-purpose, particularly
for specific financing facilities and facilitating to scale tried-and-tested social finance solutions.
collaboration between actors from the private For example, these may include tailoring capital
and public sectors. Blended finance models refer and liquidity rules to better reflect the risk profile
of such activities (e.g. proportionate credit risk
to the combination of commercial funding (e.g.
requirements for group-based lending using
microfinancing) and philanthropic capital (e.g.
concessional funds and simplified liquidity
zakat or sadaqah) to fund beneficiaries based on
requirements for ring-fenced donations).
adjusted risk acceptance criteria. Funding escalator
models, on the other hand, refer to the incubation
n We will collaborate with the industry to develop
of beneficiaries using social finance funds as they
better measures of value and impact in
develop their creditworthiness and business track
promoting more transparent disclosures of social
record, upon which they graduate to source for
finance. This strategy will be pursued together with
commercially-driven funding. Social finance funds
impact-based disclosures for value-based finance,
are also mobilised to extend financial protection to
as outlined under strategy 5B(iii).
low-income households as a form of safety net in
the event of calamity.

Box Article
Social finance as an enabler of social development in

Malaysia
Social finance has the potential to narrow remaining inclusion gaps
Social finance is envisioned to play a greater role in Malaysia’s financial landscape, with Islamic finance
leading the way – complementing public sector finance and commercially-driven financial solutions to
promote greater social resilience. Importantly, social finance has three unique qualities that can advance
financial inclusion in a way that is transformative and addresses constraints typically associated with
traditional finance.
First, social finance instruments can be designed for greater flexibility, thereby increasing the level of risk
absorbency (in contrast with traditional debt-based finance). These range from allowing more flexible
repayment terms that accommodate irregular income streams and not imposing repayment obligations
on beneficiaries (e.g. financing funded by zakat funds). For donation-sourced financing, there is usually
minimal or no financing cost attached (e.g. beneficiaries are only required to repay the benevolent
financing provided). Social finance can thus improve access to funding for segments that face challenges
in accessing commercially-driven finance. The use of more flexible, innovative financial structures can
also avoid deepening existing financial vulnerabilities (e.g. indebtedness) faced by such individuals or
businesses.
Second, implementation partners generally supplement funding with structured programmes that upskill
beneficiaries in financial management, business acumen, and other key areas (e.g. digital capabilities).
These enhance their financial literacy, foster entrepreneurial behaviour, and empower the beneficiaries to
generate a more sustainable income and improve their quality of life.
Third, social finance initiatives are often supported by impact monitoring and “pay-it-forward”
mechanisms. Effective implementation of these mechanisms can build trust among the fund providers
and target groups, as well as foster a virtuous cycle that encourages past beneficiaries to be part of
efforts to support future ones – potentially creating a valuable network of support, thereby strengthening
the upsides of social finance solutions.
The landscape of social finance solutions is becoming more vibrant and

diverse
Over the past decade, several financial institutions have been exploring different ways to deliver social
finance, refining their offerings over time (Diagram 1). While most ventures have been pursued as
part of CSR initiatives, some players are developing social finance as a viable business proposition.
Encouragingly, VBI-aligned financial institutions have begun to adopt a blended finance approach in
social finance offerings, thus improving the target segments’ access to capital and protection.
There is also greater collaboration among the diverse stakeholders and implementation partners. These
partnerships can optimise the strengths of various actors in the ecosystem (e.g. collection/distribution
agents, platform providers, payment facilitators, fund managers, and underwriters), thereby improving
efficiency and outreach, augmented by the increased adoption of digital tools.
Box Article: Social finance as an enabler of social development in Malaysia
Diagram 1:
Common characteristics of social finance offerings in Malaysia
Fund providers Type of funds Social finance intermediated by financial institutions Digital tools Network partners
Funding Business model Supporting infrastructures
Institutions’ Philanthropic capital collected and

Seed capital, microfinancing and training Safety net protection
mobile apps: distributed through changemakers
and training
Contributors  Financial
institutions
Donation Direct integration Indirect integration  State Islamic
Religious Councils Social enterprises
Donors Blended microfinancing Funding escalator Blended protection (SIRCs)
 Social enterprises
Risk absorbent capital Risk absorbent capital  Non-governmental NGOs Foundations
Risk absorbent capital (Incubate at start-up/micro (Cover self, family and organisations
level) micro business) (NGOs)
Investors
Philanthropic Channelling waqf and zakat funds
fund to socioeconomic impact projects
E-wallet
Government Waqf and (Offered by
grants
+ +
endowment
+ approved
providers)
SIRCs
Microfinancing Upskilling/mentoring Upskilling/mentoring
Financial
Government agencies
institutions QR code
(returned Zakat
zakat/ CSR)
+ Seamless collaboration and
transparency with distributed
ledger technology
Financing
Upskilling/mentoring Voluntary subscription
Corporates (Graduated SME level)
Social Payment
(CSR funds) Commercial
investment gateway
fund
account
Fintech
Opportunities to strengthen social finance
Diverse network of Interoperability between

Impact-based monitoring Central data repository
implementation partners platforms
In 2020, iTEKAD was launched – a social finance pilot programme that blends financial and non-
financial components. The first phase of the pilot has provided useful insights for participating banks
to design more flexible offerings, as well as for diverse implementation partners to support training,
business mentorship, and impact monitoring. Since then, we have seen the launch of more social finance
solutions that are consistent with iTEKAD components to support pandemic affected micro-SMEs.
These offerings combine philanthropic funds (such as grants, donations, and zakat1) with low-cost or
benevolent microfinance, supplemented with structured financial and business training. Ultimately, we are
working towards nationwide expansion of iTEKAD and similar social finance offerings by various financial
institutions. These programmes require close collaboration with diverse range of implementation partners
and stakeholders such as government agencies, SIRCs, fintech companies, NGOs, social enterprises,
and foundations.
Moving forward, multi-stakeholder efforts are key – including to promote

shared infrastructures and to support national developmental priorities
As social finance gains traction, multi-stakeholder coordination and collaboration are critical to lower
search and distribution costs, as well as to promote greater public confidence in the disbursement and
governance of funds (refer to Diagram 2).
1
Financial institutions as zakat payers may apply to participating SIRC to distribute a portion of the zakat paid (returned zakat) or partner
directly with SIRC to distribute a certain portion to eligible recipients on behalf of the SIRC, subject to predefined criteria.

Diagram 2:
Overview of the diverse social finance platforms available
Diverse platforms in the ecosystem
Public sector-led Private sector-led
SIRCs Industry initiatives Financial institutions1 Fintech companies
 States have different apps to  MyWakaf: Cashless fund-raising of  Programme allows both direct  Tulus: Payment gateway for zakat
mobilise zakat and cash waqf with waqf for eligible socioeconomic contribution from the public or from that connects 10 SIRCs and
varying features e.g. projects identified by participating existing customers (via charitable contribution of waqf, sadaqah, and
 Real-time updates on collection, financial institutions and SIRCs riders) infaq to partner agencies (e.g.
disbursement, and food bank for  MyZakat: Pool returned zakat from  Each platform has its own network of Islamic charities, NGOs, and
each mosque participating financial institutions NGOs and changemakers depending changemakers)
 Asnaf application and monitoring to support low-income on financial institutions’ appetite and  Finterra technology provider: Smart
progress microentrepreneurs in partnership qualifying criteria (e.g. track record, contract linked with specific waqf
 Basic fund payment capabilities with AIM and AKPK services, faith-based NGOs) projects involving various
 Partnerships with SIRCs based on stakeholders
established individual financial
institution’s relationship
Common challenges observed in scaling social finance2
Manual processes Resulting in these pain points

Rate of digital automation and technology adoption
among platform varies due to lack of funds and expertise
Information asymmetry
Limited data on beneficiaries’ profile, including financial
aid, which delays verification and onboarding
High search, Gaps in governance Low public
Siloed ecosystem distribution, and (e.g. leakages and awareness
Each platform operates in its own ‘bubble’ – limited operating costs exclusion errors)
operational efficiency and cost-scale benefit
1
The examples cited are social finance platforms established by financial institutions under the direct integration model.
2
These challenges are not in relation to any specific platform and are based on observations across the social finance ecosystem.
These efforts include developing shared infrastructures – or making better use of existing ones, such
as by making them interoperable – to reduce barriers to social finance offerings. Examples of such
infrastructures include:
n A shared data repository of target groups for social finance programmes, which can support better
risk-informed profiling of beneficiaries and the channelling of funds to unmet groups.
n A network of credible implementation partners – that are vested in social outcomes and have strong
relationships with ‘at-risk’2 communities – can act as support system to build trust and encourage
participation in the financial system.
n An integrated dashboard optimising mobile-based interfaces that facilitates real-time funding updates
and impact disclosures. This can address key information gaps on the social finance landscape,
including on readily available opportunities for willing stakeholders to contribute funds or volunteer
other resources.
Another important thrust is to align social finance initiatives to national priorities, thereby amplifying the
impact of social finance. These priorities include improving income generation potential for entrepreneurs
as well as providing funding support for the provision of cost-effective education, healthcare services
and facilities for common non-communicable diseases. Suitable financing and protection solutions can
be designed to support these sectors in line with Malaysia’s long-term focus on sustainable economic
growth and entrepreneurial drive towards a high-income society and shared prosperity for all.
2
These target groups, among others, are budding entrepreneurs and community groups with the ability to generate productive income when
supported by small financing and protection value.
Box Article: Social finance as an enabler of social development in Malaysia

References
Acronyms and abbreviations
AFC Asian Financial Crisis CRR composite risk rating
Centralised Shariah Advisory

AI artificial intelligence CSAA
Authorities
AICB Asian Institute of Chartered Bankers CSM CyberSecurity Malaysia
AIM Amanah Ikhtiar Malaysia CSPs cloud service providers
Credit Counselling and Debt

AKPK CSR corporate social responsibility
Management Agency
Anti-Money Laundering and
AML/CFT DeFi decentralised finance
Countering Financing of Terrorism
Anti-Money Laundering, Anti-
DFI Development Financial Institution
AMLA Terrorism Financing and Proceeds of
Unlawful Activities Act 2001
DLT distributed ledger technology
API application programming interface
EAC Economic Action Council
ASB Asia School of Business
ECF equity crowdfunding
Association of Southeast Asian
ASEAN
Nations
EIS Employment Insurance Scheme
Basel Committee on Banking
BCBS
Supervision
e-KYC electronic Know-Your-Customer
BIS Bank for International Settlements
EPF Employees Provident Fund
CAGR compounded annual growth rate
e-Payment Incentive Fund
ePIF
Framework
CBA Central Bank of Malaysia Act 2009
environmental, social and
ESG
governance
CBDC central bank digital currencies
FA financial adviser
CCA Consumer Credit Act
FATF Financial Action Task Force
CCOB Consumer Credit Oversight Board
Financial Capability and Inclusion
FCI
Climate Change and Principle-based Demand Side Survey
CCPT
Taxonomy
FDI foreign direct investment
Corporate Debt Restructuring
CDRC
Committee
FEN Financial Education Network
Credit Guarantee Corporation
CGC
Malaysia Berhad
Financial Sector Cyber Threat
FinTIP
Certification in Risk Management Intelligence Platform
CRMA
Assurance
FIRST Financial Resilience Support Scheme
International Centre for Education in

FP financial planner INCEIF
Islamic Finance
FSA Financial Services Act 2013 IoT internet of things
FSB Financial Stability Board IP intellectual property
FSP financial service provider IsDB Islamic Development Bank
International Organisation for

FX foreign exchange ISO
Standardisation
International Shari’ah Research
G20 Group of Twenty ISRA
Academy for Islamic Finance
GDP gross domestic product ITOs insurers and takaful operators
GHG greenhouse gas JC3 Joint Committee on Climate Change
government-linked investment
GLICs KPI key performance indicator
companies
GTFS Green Technology Financing Scheme LCTF Low Carbon Transition Facility
HDC Halal Development Corporation LEAs law enforcement agencies
hospital and surgical insurance/

HSIT LIFBs locally-incorporated foreign banks
takaful
Malaysia Administrative
IA Investment Account
MAMPU Modernisation and Management
International Association of Planning Unit
IAIS
Insurance Supervisors Malaysia Standard Classification of
MASCO
Occupations
Islamic Banking and Finance Institute
IBFIM
Malaysia Malaysia External Trade
MATRADE
Development Corporation
Risk-based Global Insurance Capital
ICS
Standards Malaysian Communications and
MCMC
Multimedia Commission
Interoperable Credit Transfer
ICTF
Framework Malaysia Digital Economy
MDEC
Corporation
Islamic fund management
IFMCs
companies
MHIT medical and health insurance/takaful
IFSA Islamic Financial Services Act 2013
Malaysian Investment Development
MIDA
Authority
IFSB Islamic Financial Services Board
Malaysia International Islamic
MIFC
Financial Centre
International Islamic Liquidity
IILM
Management Corporation
ML machine learning
IMF International Monetary Fund
money laundering and terrorism
ML/TF
financing

Malaysia Deposit Insurance

MOE Ministry of Education PIDM
Corporation
MOF Ministry of Finance POC proof-of-concept
Persatuan Penguji Keselamatan

MOH Ministry of Health PPKS
Siber
Malaysian Research Accelerator for
MRANTI PRS Private Retirement Scheme
Technology and Innovation
MyCAC Malaysia Climate Action Council PSOs payment service operators
MyKNP Khidmat Nasihat Pembiayaan PSPs payment service providers
Risk-Based Capital Framework for

MySPC Malaysia Social Protection Council RBC/T
Insurers and Takaful Operators
National Cyber Security Agency Real-Time Electronic Transfer of
NACSA RENTAS
Malaysia Funds and Securities System
NDSP National Data Sharing Policy repo repurchase agreement
NFCC National Anti-Financial Crime Centre RMiT Risk Management in Technology
Network for Greening the Financial

NGFS RMK12 Twelfth Malaysia Plan
System
NGOs non-governmental organisations RPA robotic process automation
NIA National Investment Aspirations RPP Real-time Retail Payments Platform
National Institute of Standards and

NIST RRF Reference Rate Framework
Technology
NRA 2020 National Risk Assessment 2020 RRP recovery and resolution planning
Organisation for Economic Co-

SBR Standardised Base Rate
OECD/ operation and Development /
INFE International Network on Financial
Education SC Securities Commission
OFS Ombudsman for Financial Services

SCEL Single Counterparty Exposure Limit
OIC Organisation of Islamic Cooperation

SDGs Sustainable Development Goals
P2P peer-to-peer
SDRS Small Debt Resolution Scheme
PayNet Payments Network Sdn. Bhd.

SEACEN South East Asian Central Banks
PCRF Payment Card Reform Framework

SESS self-employed social security
PDPA Personal Data Protection Act 2010 Securities Industry Dispute

SIDREC
Resolution Center
PE private equity
SIRC State Islamic Religious Councils
Syarikat Jaminan Pembiayaan

SJPP TPSPs third party service providers
Perniagaan
United Nations Development
SMEs small and medium enterprises UNDP
Programme
Financial Management and
SPM Skim Pembiayaan Mikro URUS
Resilience Programme
sustainable and responsible
SRI USA United States of America
investment
SSM Companies Commission of Malaysia VBI Value-based Intermediation
Value-based Intermediation
STE Staff Training Expenditure VBIAF
Assessment Framework
Value-based Intermediation for
STF Staff Training Fund VBIT
Takaful
Task Force on Climate-related
TCFD VC venture capital
Financial Disclosures
Tabung Ekonomi Kumpulan
TEKUN
Usahawan Niaga

For further information about Bank Negara Malaysia and its publications:
write to:
Director
Strategic Communications Department
Bank Negara Malaysia
P.O.Box 10922
50929 Kuala Lumpur
Malaysia
Tel : +(603) 2698 8044

Fax : +(603) 2693 6919
or visit our World Wide Web site:

http://www.bnm.gov.my
In reproducing or quoting contents, acknowledgement of source is requested.

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Contents

08 Malaysia’s Financial Development Context

20 Our regulatory focus for financial development

90 Position the financial system to facilitate an orderly transition to a

FINANCIAL SECTOR BLUEPRINT 2022-2026 1

YB Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz

Nor Shamsiah Yunus

FINANCIAL SECTOR BLUEPRINT 2022-2026 3

Key megatrends shaping the landscape ahead

Economic conditions Demographics

Technology Climate and environment

Desired outcomes and targets for 2026

Our regulatory focus for financial development

Foster market dynamism while supporting sustainable development

s Address undue barriers to market entry, while ensuring orderly exit

… anchored on monetary and stability mandates

s Continued monetary policy efficacy amid changing landscape

Five strategic thrusts for 2022-2026

a. Sustain a strong economic recovery

b. Facilitate transformation to a high-income nation

FINANCIAL SECTOR BLUEPRINT 2022-2026 5

a. Enhance financial capability and access, as well as effective

b. Strengthen protection for households and businesses to build

a. Futureproof key digital infrastructures

b. Support a vibrant digital financial services landscape

d. Support greater use of technology for regulation and

a. Integrate climate-related and environmental risks in

b. Support orderly transition to a low-carbon economy

a. Sharpen Malaysia’s proposition as an international gateway

b. Strengthen policy enablers of value-based finance for greater

FINANCIAL SECTOR BLUEPRINT 2022-2026 7

20 Our regulatory focus for financial development

FINANCIAL SECTOR BLUEPRINT 2022-2026 9

Key trends and developments

Financial services continue to be Continued growth, alongside greater

96% of customers have active 170 e-payment transactions made per

95% of sub-districts have access

45% of business financing is 14 countries host operations of

41% share of total financing by the 5 new locally-incorporated foreign

42% of adults own at least one 42% share of global sukuk

Malaysia’s financial system today is the outcome of

FINANCIAL SECTOR BLUEPRINT 2022-2026 11

n Enhancements to the financing ecosystem for

A new landscape places new demands on the financial sector

Economic conditions Demographics

Technology Climate and environment

Macroeconomic trends amid an uneven global economic recovery

FINANCIAL SECTOR BLUEPRINT 2022-2026 13

The financial sector is expected to play an important

Rapid technological change

FINANCIAL SECTOR BLUEPRINT 2022-2026 15

Demographic shifts and challenges

Financial literacy gaps will also remain relevant in

Climate change and the broader sustainability agenda

Reforms needed for a more

FINANCIAL SECTOR BLUEPRINT 2022-2026 17

The need for a ‘whole-of-nation’ approach

What success looks like in 2026