Malaysia Poised For Rapid Economic Opportunity, Increasing Wealth Creation

Malaysia is the 20th most financially inclusive market out of 42 markets analyzed globally, according to the inaugural 2022 Global Financial Inclusion Index (Index) from Principal Financial Group®

Malaysia ranks fifth for financial inclusion support provided to employees by their employers. Its financial system receives high scores for enabling business confidence, and its government support ranks in the top 10 for laws and regulations which prioritize financial protection for consumers. 

Within the report, Principal proposes that Malaysia’s high scores in a number of indicators analyzed suggest it is poised to experience an acceleration in its development as a capital and wealth market, resulting in rapid economic opportunity and greater output of wealth creation for its population and international participants. 

The Global Financial Inclusion Index

The Global Financial Inclusion Index is built around three pillars – government support, financial system support, and employer support. It examines the extent to which each of these pillars provides the relevant tools, services, and guidance to enable their populations to achieve greater levels of financial inclusivity. 

The Index was conducted in partnership with the Centre for Economics and Business Research (Cebr). The methodology combines various data sources into one unified measure of financial inclusion at the market level. 

Malaysia Key Findings

  • Malaysia ranks fifth for employer support, 20th for government support, 23rd for financial system support, and 20th overall, relative to the other markets analyzed in the Index. 
    • This ranking mirrors a broader trend observed in the study whereby economies that rank higher on employer support tend to rank lower on Government or financial system support.
  • Malaysia ranks in the top 10 across all indicators analyzed under the employer support pillar; employer-provided guidance and support around financial issues for employees; employee pension contributions; employer-provided insurance benefits; and flexible pay initiatives.
  • Under financial system support, Malaysia ranks 10th as an enabler of growth and success for small and medium-sized enterprises, and 11th both as an enabler of general business confidence and for borrowers’ and lenders’ protection rights. 
  • Relative to other markets analyzed, Malaysia’s rankings are lower when it comes to government support regarding general literacy and financial literacy levels, as well as online connectivity based on fixed broadband subscriptions and mobile cellular subscriptions across its population. However, it ranks 10th for laws and regulations which prioritize financial protection for consumers, and seventh for its quality and coverage of deposit protection schemes.
  • Amongst emerging markets, Thailand and Malaysia have been able to build up stronger government and financial system support to situate themselves in the top half of the overall rankings (19th and 20th respectively) and top five emerging markets (fourth and fifth respectively).
  • Elsewhere across Asia, Singapore is the world’s most financially inclusive market, followed closely by the U.S. along with Nordic Europe, and Hong Kong.

“Malaysia has made significant steps over the past decade to accelerate financial inclusion for its population. The country’s federal statutory body that manages the compulsory savings plan and retirement planning for private sector workers in Malaysia, for example, has one of the most competitive mandatory retirement savings rates in the world,” said Munirah Khairuddin, Country Head And CEO, Malaysia, Principal Malaysia. “In addition, Malaysian banks are well capitalized, which has increased their ability to finance and loan to small businesses. Equally, as a wealthy middle class grows, there’s been a push to create a retail investment culture by reducing state-owned stakes in government-linked companies and encouraging stock purchases across the population that encourages intelligent risk-taking.”

Investment implications: Analyzing risks to resilience and growth through the lens of financial inclusion

Malaysia ranks in the top half of the table overall. Malaysia ranks well compared to other emerging economies for employer support. Although it slips down the rankings for government and financial system support, it still features in, or only just outside, the top half of the table in each pillar. Malaysia’s results indicate a stage of development where economic growth, based on the right conditions at a government level, can be accelerated rapidly by the private financial sector.

“The three pillars underpinning financial inclusion can provide valuable insight into how global economies are able to navigate periods of growth and recession. How well countries perform across the pillars can also indicate which countries may be poised to experience an acceleration in their development as real capital and wealth markets,” said Patrick Chang, Chief Investment Officer, Malaysia and Equities, ASEAN, Principal Southeast Asia. “Malaysia’s scores across indicators like business confidence and access to credit suggest the economy has reached a point in its development where businesses can borrow with confidence, enabling investment for the future. We feel positive about Malaysia’s long-term investment prospects, reflected by our equity investments in local companies and significant human capital commitment.”

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