.

Why did Bank Rakyat Malaysia make a shift from the conventional cooperative

system (as envisioned by its founders) to an Islamic banking system?

The reason why Bank Rakyat Malaysia makes a shift from the conventional cooperative

system to an Islamic banking system is because it needed to create a culture of change and

flexibility to adapt to the changing external environments. Bank Rakyat faced challenge that it

had to maintain the vision while revisit the mission as it was in line with the founding fathers’

idea of serving its members. Hence, a new structure was created to aid efficient decision

making and communication with stakeholders whereby the vision was maintained. The

strategies that bank outlined are focus on market, product, customer, social responsibilities

and product range.

In 1993, Cooperative Act was reviewed allowing the bank to operate in Sabah and

Sarawak. On 8 May 1993, BRM introducing Islamic banking products at four of its branches

as a giant step towards becoming a Syariah-compliant cooperative bank. In 2002, BRM

became a full-fledged Islamic cooperative bank. BRM became the third bank to offer a total

range of Islamic banking products in Malaysia. This is match to the strategy of product range

which explores the business opportunities beyond retail banking.

In early 2006, the Bank had almost 45,000 customers who are retired person saved their

money for a comfortable retirement life and therefore marketing efforts had focus on

consumer financing products. Thus, Bank Rakyat signed a memorandum of understanding

with Takaful Ikhlas, Malaysian company offering Islamic insurance services, to offer the new

product - Personal Financing-i. This is considered as the implementation of as well as product

strategy by determine unique product as well as market strategy that widens and penetrates

the market through effective marketing effort.

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 With old and established institution, Bank Rakyat started facing increasing pressure to

deliver high volumes of transactional and operational data, securely and in real-time. By

2002, BRM’s existing network had reached maximum capacity and would not have been able

to support new services to be implemented in the near future. To provide valuable offerings

through a service that is sensitive to customer needs which considered as the strategy that

focus on customer. As a result, Bank Rakyat branches decided to upgrade the existing

network to be a leading Islamic Cooperative Bank by installed a CISCO network system to

install and manage the huge amounts of data that its day-do-day operations generated.

Bank Rakyat has a total of 126 branches after the launch of its branch offering Islamic

banking facilities to customers in Kuala Nerang, Kedah on 23rd November 2010. Then BRM

has an addition branch in Sarawak in 2011 offering Islamic banking facilities to customers

(members). This branch offers one of the highest returns compared to any other commercial

bank. In this way, Bank Rakyat had implemented strategy that increases contribution towards

social development and members’ need.

2
. By evaluating and assessing the future direction of the banking industry, suggest the

course of action for Bank Rakyat.

Future direction of Bank Rakyat:

a) Increase loan disbursals from 15% to 25%.

b) Focus on the retail segment with greater emphasis on personal loans, car and housing

financing and maintain a pre-tax and pre-zakat profit annual growth target of 15%.

c) Increase car financing from existing level of 10% to 25% in the future.

d) Work in collaboration with SME Bank to identify areas in which it could facilitate

loans to small and medium enterprises.

e) Increase more branches.

f) Help to improve the economic well-being.

Suggestion of course of action for Bank Rakyat:

To access the future plan of Bank Rakyat, Bank Rakyat should be more efficiency and

efficient in its service provided to its customer. The service of Bank Rakyat should be faster

compared to the other bank. When Bank Rakyat service is faster, more customer will visit

Bank Rakyat as the customer get to save their time and does not need to wait very long for the

services. The time taken for loan approval should also be reduce so that the loan given to the

customer is much faster compared to the other banks. When the customer felt that the time

taken for their loan to be approval is shorter, they will be much more satisfied and will come

back to you again in the future. If the time taken for the loan to be approval is very long, this

will affect the customer. The customer may need the money urgently but if the time taken for

the approval is very long it will badly affect the customer.

Other than that, Bank Rakyat can also provide lower deposit for the car and housing

financing and also lower interest rate for the loan to attract more customer. When Bank

3
Rakyat give lower deposit to the car and housing financing, the burden of the customer is

reduced as the customer does not need to prepare a lot of money for the deposit. A lower

interest rate for the loans even just lower at 0.1% compared to the other banks does bring

some difference as well. If the amount of the loan is huge, a lower interest rate can affect the

interest repayment of the customer largely. All customer prefers lower interest rate and lower

deposit and if Bank Rakyat lower the interest rate even just a little it definitely will attract a

lot of new customer. Bank Rakyat should also increase the interest rate for the saving account.

This is to attract more depositor so that Bank Rakyat has enough fund to do lending.

On the other hand, Bank Rakyat should cultivate a good relationship with the car dealer to

increase the amount of car financing. A good relationship with car dealer, will make the car

dealer promote Bank Rakyat car financing to the buyers. Bank Rakyat can reward the car

dealer for promoting as well. This can encourage the car dealer to promote more of Bank

Rakyat car financing. Bank Rakyat can also offer a special plan for car financing. Special plan

for the first-time car buyer that has just graduate. Special plan can include lower interest rate

for the first 3 year of the loan repayment, as the buyer has just graduate and with lower

interest rate for the first 2 year, the amount of monthly repayment is also lower for the buyer.

This can reduce the burden for the buyer as the buyer has just graduate and just started

working. Special plan can also include lower deposit amount because the buyer has just

graduate and probably does not has much saving. When the bank asked for lower deposit is

kind of risky for the bank, but the bank can ask for guarantor of the car buyer. With this

special plan, Bank Rakyat can bring benefits to not only itself but the car dealer and the buyer

as well. Car dealer can easily promote the plan and the burden of car buyer has reduced.

Furthermore, Bank Rakyat can increase its community involvement and visibility thru

corporate social responsibility. Not only providing quality services, Bank Rakyat should work

together with the public to create better places to live and work and better economy for the

4
country. This not only bring benefit to the public but also to Bank Rakyat as this can increase

Bank Rakyat’s visibility through donating resources and effort to the public. Bank Rakyat can

volunteer or serve on the boards of community organizations and non-profit organizations.

Bank Rakyat can sponsor local teams, community events like art and food festivals, financial

education and sport event are good ways to increase the visibility of the bank in the public.

Bank Rakyat can also give scholarship to the student that has financial problem as well.

Besides that, Bank Rakyat should give loans to all the sectors in Malaysia. Bank Rakyat

should not only give loans to the sector that are growing but to all the sectors that deserve a

chance. Bank Rakyat should give loans especially to the small and medium enterprises so that

their business can grow. When their business grows, there will be more job opportunity for

the peoples of the country and the economy of the country will going up as well. This can

bring benefit to all the parties not only Bank Rakyat itself.

The next action should take by Bank Rakyat is to have a loan portfolio diversification. A

diversified bank portfolio can help banks to avoid excessive risk concentration. Different

types of loans react differently to certain market conditions. Therefore, when certain loan

products start to perform badly, a well loan portfolio diversification can remain strong during

that same period of time. This helps keeping the chance of failure at a low level [ CITATION

Top17 \l 1033 ]. This helps the bank to earn more income indirectly. When the bank has more

income, the bank can provide more loans to borrowers. This is consistent with Bank Rakyat’s

mission which is to help improve the economic well-being of members by providing

financing facilities at an affordable rate for agriculture, production, marketing, fishing,

transportation, housing and business activities that are deemed beneficial to members and to

also promote thrift and savings. Besides that, a higher income can help Bank Rakyat to

achieve its plan which is setting up of several new branches.

5
6
. Discuss the appropriateness of BRM’s decision to adopt a technological component

towards achieving its goal as a financial organisation vis-a vis other commercial

banks operating in the Malaysian environment.

Based on the case given, the decision of Bank Rakyat Malaysia (BRM) to adopt a

technological component towards achieving its goals as a financial organisation is

appropriate. In order to support this statement, one of the reasons was that BRM operated

under a direct regulation from Central Bank of Malaysia (BNM) with the Development of

Financial Institutions Act (DFIA). Under this DFIA, Bank Rakyat Malaysia needed to follow

the level of network security that set by BNM. Although BRM was an old established

institution, it faced a problem that it achieved the maximum network capacity by 2002 and

this made the new services to be implemented could not be supported. Bank Rakyat’s network

efficiency was not enough to fulfil the requirement by BNM, so BRM was forced to improve

their existing technology.

Furthermore, the problem of lack of capacity on networking will slowed down the daily

efficiency of Bank Rakyat to proceed their banking business in data management and website.

In order to achieve their aim which was “to be a leading Islamic Cooperative Bank”, the bank

decided to install CISCO network system to manage the vast amounts of data from their daily

business. By doing so, their capacity of network could be increased and the ability on

promoting new product also increased.

Before Bank Rakyat enhanced their network and technology, the time required for

approving the loan request was longer. The maximum amount of the loan had been made was

limited and the process of analysing the customer information took long time. To become the

high efficiency and more profitable bank, the bank had spent RM2.8 million in 2004 to

upgrade the bank Microlink Banking Solutions system by cooperating with Microlink

Systems Sdn. Bhd. and Sun Microsystems Inc. Through this latest facility, the bank became
7
more efficient in giving loan. This was because BRM not only can provide the face-to-face

services, but it also can provide online banking services. By having these facilities, BRM can

save their time because the bank could approve the loan application through internet. Hence,

the bank’s profitability become higher, the investors and shareholder were more confident to

the bank and they were willing to increase their investment. From this, the bank’s share in the

retail loans market increased.

The Bank Rakyat Malaysia put a lot of efforts on applying the technology on their

banking system, hence, the achievement that had been done by BRM was it became the first

non-commercial bank in the Malaysian Electronic Payment System Sdn Bhd (MEPS) network

that operated as a shared automated teller machine (ATM) network in South-east Asia. MEPS

provided the withdrawal, fund transfer and other transactions services through ATM to the

debit or credit cardholders of Bank Rakyat. In Malaysia, there were 14 financial institutions

including Public Bank Bhd and Malayan Banking Bhd that jointly set up MEPS and it

covered 10 anchor banks and two Islamic banks with 12 million ATM cardholders. This

shows the decision of Bank Rakyat to adopt technology to their business not only achieve

their target to become the lead of Islamic Cooperate Bank and it also make BRM is able to

compete with others commercial bank.

8
REFERENCES

Top 5 Reasons To Have Diversified Bank Portfolios. (2017). Retrieved November 25, 2018

from TRIAD FINANCIAL SERVICES: https://www.triadfs.com/news/top-5-reasons-

to-have-diversified-bank-portfolios

Eight Ways to Grow Your Loan Portfolio. (n.d.). Retrieved November 25, 2018 from THE

WHITLOCK CO.: https://www.whitlockco.com/eight-ways-to-grow-your-loan-

portfolio/