Central Bank of Malaysia (BNM) and the Co-operatives Movement in Malaysia – An Antithesis

BNM’s main function within our financial system ought to be the formulation of monetary policy in order to monitor and target desired inflation levels through tools such as interest rates, overseeing money supply, and, upholding the integrity of the official currency, the Ringgit, through prudent management of international reserves, exchange controls policy making and scrutinizing the inflows and outflows of funds of foreign origin.

However, BNM is further saddled with a secondary function of regulating and supervising the banking, insurance and developmental finance sectors which has resulted in a bloated central bank in terms of workforce, very much mirroring the overly expanded but under performing civil service of the country.

In economies and financial systems of developed and well governed countries, the role of regulating and supervising the banking, insurance and financial sectors are segregated and undertaken by specialized supervisory agencies and not the respective central banks.

In Malaysia, BNM seems to be giving the general perception that it can take on so many critical responsibilities and duties with respect to the financial health of the country. This has become more complex and taken on an added dimension post-Asian Financial Crisis 1998 and the Global Financial Crisis/Subprime Mortgage Crisis 2007-2008 wherein BNM has to now grapple with macro prudential and financial stability aspects of the financial system. However, this has only led to the over stretching of its resources and a muddled oversight of the financial system. The overzealous push by BNM and its Governor for the creation of a Malaysian superbank in recent times is a consequence of this disarrayed policy making. The fact that BNM and its Governor are not independent of the country’s political system and its masters further compounds this perplexing state of affairs.

The recent introduction of the Financial Services Act (FSA) and the Central Bank Act (CBA) replacing the long standing Banking and Financial Institutions Act (BAFIA) does not bode well for the co-operatives movement in the country.

The FSA and the CBA have now been designed to “swallow-up” the entire gamut of co-operatives in the country and bring them under the purview and supervision of BNM.

This is a great folly of Parliament and the co-operatives movement of this country, which has historically predated the banking industry in this country, has been betrayed by lawmakers from both sides of the political divide, when these two new Acts were rubber stamped in Parliament.

The very nature of the co-operative concept makes it an antithesis for BNM to have seized the right to regulate and supervise the movement in a Machiavellian manner.

There are about 10,400 co-operatives in the country, and a few hundreds languishing within the ambit of the Malaysian Cooperative Commission, and its sourced income going into the coffers of the Commissin and are we to naively believe that BNM has the capacity, ability and know how to supervise these co-operatives, whose operations, constitutions and objectives not only differ from one entity to the other, but are so materially different from a licensed financial institution.

Why is there all of a sudden a duplication of supervisory and regulatory roles for the co-operatives movement? What is the role of the Co-operatives Commission now in light of BNM’s muscling in? What is the task of the Ministry of Domestic Trade, Co-operatives and Consumer Affairs now in terms of regulating and supervising the co-operatives in Malaysia?

We are not for zero supervision of the co-operatives in the country. As a matter of fact, we want and need more supervision of the co-operatives. However, it must be carried out by the right agency and not by a central bank which does not comprehend the essence of the co-operatives movement in the country.

Thuraisingham Shan

Cooperative & Management Consultant

Adviser, Cooperative Union of Malaysia