Malaysia has become synonymous with showcasing exemplary efforts that have led to the global rise and awareness for Islamic finance. From a modest beginning three decades ago, Islamic finance has become well-entrenched as a provider of a comprehensive ecosystem covering a diverse range of financial solutions to the government, businesses and retail.
Review of 2020
Despite the ailing repercussions brought on by COVID-19, initiatives by the government of Malaysia (GoM) and the private sector more than demonstrated the coalition of willingness to band together in support of stabilizing the economy. Malaysia’s call to arms to protect lives and livelihoods began in February 2020. To date, the GoM has released RM305 billion (US$73.35 billion)-worth of economic stimulus packages with 46% geared toward households:
The advent of the pandemic, now more than ever, highlighted the urgency to ensure financial inclusion and the use of financial technology as a critical lever to achieve it. On the Islamic banking front, these two themes have taken center stage in product innovation, along with an emphasis on social financing.
|Table 1: GoM’s initiatives for COVID-19|
|1.||Economic Stimulus Package 2020 (ESP1)||27th February 2020||20|
|2.||Prihatin Rakyat Economic Stimulus Package (Prihatin)||27th March 2020||230|
|3.||Economic Stimulus Package 2020 (ESP3)||6th April 2020||10|
|4.||Pelan Jana Semula Ekonomi Negara (PENJANA)||5th June 2020||35|
|5.||Prihatin Supplementary Initiatives Package (Kita Prihatin)||23rd September 2020||10|
|Source: Ministry of Finance, Malaysia|
The latter, in particular, reflected the country’s aim toward more value-based intermediation. The lockdowns imposed by the GoM to control the spread of COVID-19 has catapulted the importance of digital connectivity, especially in serving everyone’s financial needs and objectives.
Fortunately, Malaysians can lay claim to one of the most digitally connected societies in the world, with 80% enjoying broadband access, mainly through mobile networks, compared with the global average of 67%. Added to the fact that the nation has one of the highest levels of financial inclusion [measured by percentage of adults with at least one type of deposit account (2019: 96%) and number of deposit accounts per 10,000 adults (2019: 30,640)] among middle-income countries and these have helped the GoM to realize a number of financial inclusion measures, including Takaful.
As the nation battled the second wave of COVID-19, the reopening of the economic sectors slowed again posing concerns to unemployment levels. At the end of August 2020, the unemployment rate stood at 4.7% (August 2019: 3.3%) equivalent to 741,600 unemployed persons. The catastrophic loss of disposable income brought on by the contraction of the economy, closure of businesses, job cuts to manage companies’ loss of income vs. overheads, etc, has pushed more people to the brink of poverty. Digital connectivity and access to deposit accounts have facilitated the GoM in supporting the Bottom 40% (B40) and Middle 40% (M40) — the income groups worst affected by the pandemic — via the distribution of cash aids for households with a monthly income of less than RM4,000 (US$962) and healthcare needs. Beyond the MySalam scheme, a national family insurance protection scheme for the B40 income group, and subsequently extended to the M40 income segment in 2020, Takaful providers were one of the first to respond to the immediate needs of the market by offering complimentary extension of COVID-19 coverage, and establishing a special fund for COVID-19 testing for medical insurance policyholders and medical Takaful certificate holders.
Another landmark Islamic finance initiative was Malaysia’s first digital Sukuk that combined financial innovation with social financing. The Sukuk Prihatin facility was issued on the 22nd September 2020 with proceeds used to enhance connectivity in rural schools, finance eligible microenterprises (with a focus on women entrepreneurs) and as research grants for infectious diseases, according to Ministry of Finance. The Sukuk carried a 2% annual profit payment, payable quarterly. Sukukholders have the option to donate part or all of the principal amount when the Sukuk facility matures in two years’ time on the 22nd September 2022. As an incentive stimulus, all profits from Sukuk Prihatin are tax exempted and the principal sum donated is tax deductible.
In the same light, Maybank launched the country’s first social impact deposit on the 15th October 2020. Under the campaign, the public with social finance objectives may place a RM1,000 (US$240.5) minimum Islamic fixed deposit for six months. Maybank Islamic will separately contribute 0.3% per annum to a special account, which is the Social Impact Assistance Account, for every deposit placement made during the offer period.
According to Maybank, the special account is to provide support to beneficiaries comprising Maybank Islamic customers identified and assessed by the bank to be in dire need of financial assistance due to loss of income or employment.
Preview of 2021
Moving forward, the highly anticipated Capital Market Masterplan (2021–30) and Malaysia Budget 2021 will set the tone in shaping the financing and investment future landscape. Notwithstanding Bank Negara Malaysia’s GDP prediction to be between 5.5% and 8% in 2021, the wait continues to see the extent of the impact the GoM’s economic stimulus initiatives will have in stabilizing economic conditions. Forecast/projection estimates will continue to be blurred at least until the end of 2020 before a foreseeable light can be obtained in foretelling the outcome for 2021.
In times of adversity, it has been remarkable how the silver lining has been the people rallying to become more socially conscious not just in aspects of public health and welfare, but also in supporting the local economy. Equally important is the participation from the private sector to also be responsible in re-energizing the economy.