BY CECILIA KOK

Governor’s view: Muhammad says financial inclusion is a global priority to address the widening income inequality gap.

KUALA LUMPUR: Bank Negara’s concept papers on financial technology (fintech), which will eventually form a guideline on the matter for financial institutions in Malaysia, is near completion, according to the central bank governor Datuk Muhammad Ibrahim.

“Our concept paper (on fintech) is almost ready because we have received the feedback from the industry; so, we will finalise it and it will become a guideline for financial institutions,” he said.

“We’re quite happy that we are able to do it within the stipulated time,” he told reporters after delivering his opening speech at the Global Symposium on Innovative Financial Inclusion here yesterday.

Jointly organised by Bank Negara and the World Bank Group, the two-day symposium was themed “Harnessing Innovation for Inclusive Finance”.

Muhammad, who said in July that Bank Negara was expected to release the regulatory framework on fintech by the final quarter of this year, said fintech could help promote financial inclusion in Malaysia.

“Fintech is an enabler for financial inclusion. If we use fintech, the cost of delivering financial inclusion to our people will be much lower, and more effective and efficient,” he explained.

In his opening speech at the symposium, Muhammad noted that financial inclusion, defined as access to financial services and products, was a global priority to address the widening income inequality gap; promote the economic empowerment and protection of low-income households and small and medium-sized enterprises (SMEs); and unlock the growth potential of the fast-expanding middle-class population.

“Expanded opportunities to save securely, to invest in productive activities and to protect against unforeseen shocks, would meet the needs of the underserved. This would drive domestic demand, a key engine of growth for many economies,” Muhammad said.

“A succession of technology breakthroughs combined with the ubiquity of mobile devices present significant opportunities to scale up financial inclusion to an unprecedented level,” he added.

On financial inclusion in Malaysia, Bank Negara said that at present, 91% of the country’s population had accounts with the formal sector, and 99% of the population had access to financial services.

“Technology is being used by financial institutions to improve operations – from improving customer experience to constructing better models to manage risks more efficiently and effectively. In many cases, strategic partnerships with fintech companies have been established to achieve similar outcomes,” Muhammad said.

Meanwhile, the World Bank said fintech could narrow the financial-inclusion gap in the developing world.

“We view fintech as a transformative force that can help fill many of the gaps in terms of financial inclusion that we see in the developing world,” Sebastian Molineus, World Bank director for finance and markets global practice, stressed.

“We are optimistic that the number of people and firms without access to financial services will decline rapidly in the upcoming years, thanks to fintech,” he added.

The World Bank estimates that worldwide, two billion people still lack access to financial services as of 2014. Of the number, 1.1 billion were located in Asia. Similarly, the global lender estimates that approximately 200 million SMEs around the world still do not have access to credit.

“The benefits of fintech are enormous not only for consumers, but also for financial institutions in managing risks and securing efficiency gains,” Molineus said.

He noted that fintech had the potential to deliver more resilient financial infrastructure, more effective trade and settlement, and new ways to encode, share and analyse data. But fintech could also bring risks and challenges that must be discussed and understood properly.

“Fintech can disrupt financial markets positively, bringing benefits arising through competition, efficiency gains and lower costs; or it can be a source of increased risks for stability, integrity and market conduct,” Molineus said.

“We believe fintech companies will continue to challenge traditional financial institutions, disrupting and even displacing some of them. Therefore, banks and other well-established financial institutions will need to actively harness technology to enhance product offerings and improve efficiency,” he said.