Make your own free website on





By: Zainul Kamar Mohd Zain

General Manager

Bank Pertanian Malaysia



Paper Presented in the

48th APRACA Executive Committee Meeting

And Regional Symposium on the Future of Rural and Agricultural Finance Institutions

Tehran and Isfahan, Iran

October 9-15, 2004







Malaysia’s Vision 2020 is to be a developed nation by the year 2020.  Manufacturing and the service sectors will be the driving force of the economy but the agriculture sector will still remain an important contributor, especially in the food production.  Although the percentage contribution of agriculture to gross domestic product (GDP) is declining, in term of absolute value the amount is increasing.  The agriculture sector has contributed significantly to the growth of the Malaysian economy and for it to continue significantly contribute to the national economy, it has to be globally competitive.  The Third National Agricultural Policy (NAP3), which covers the period 1998 to 2010, provides the policy framework for the future growth of the agricultural sector in the next decade.  


The future of the rural and agricultural finance institutions in Malaysia including Bank Pertanian Malaysia (BPM), a development financial institution entrusted to play an important role in the development of agricultural sector, rest on the ability of these institutions in meeting the challenges to remain sustainable and competitive. With the liberalisation of the world trade including the financial sector through the WTO, the Common Effective Preferential Tariff (CEPT) of the ASEAN Free Trade Area (AFTA) agreements, the trade competition will be stiff amongst existing players and new competitors from within and outside the nation.  BPM must find ways to strengthen its existence by having enough capital, improving its operation, expanding its scope of business and operating as a total bank.  





BPM was established by an Act of Parliament on 1st September 1969 and commenced its operations on 1st January 1970.  As a statutory body, the Bank is responsible to arrange, provide, supervise and co-ordinate credit for agricultural purposes in Malaysia.  The idea for an agricultural bank is directly a result of the government’s decision to embark on the Muda Agriculture Project, a massive irrigation scheme for the rice bowl areas in the Muda Valley located in Kedah and Perlis in the northern part of peninsula Malaysia.  The project is currently administered by Muda Agricultural Development Authority (MADA).


Financing for Muda project was provided by the World Bank.  In its appraisal report, the World Bank highlighted the need for an institutionalized credit programme to finance double cropping of paddy.  The report recommended that a special credit scheme be devised to support the implementation of the project and to ensure the full realization of maximum economic and social benefits.


BPM was thus established as a Rural Finance Institution to specialize in the provision of credit to the agricultural sector.





3.1    Objective


As a Development or Rural Finance Institution, BPM specializes in the provision of credit to the agricultural sector.  This is done mainly through working with farmers with the aim of improving their attitudes, level of skill and knowledge, and ability to initiate and manage agricultural projects.


The main objectives of BPM as stipulated in the BPM Act are:

·        To promote sound agricultural development in Malaysia or any part thereof;


·        To co-ordinate and supervise the grant of credit from public fund for agricultural purposes by various person or bodies or persons whether corporate or incorporated;


·       To provide loans, advances and other credit facilities for the development of agriculture, including production and marketing;


·        To mobilize savings with particular regard to the agricultural sector and in furtherance of this objective, to accept savings and time deposits.


3.2    Vision


The vision of BPM is 'to be a reputable Bank playing a key role in agriculture in Malaysia.'



3.3    Mission


BPM’s mission is to provide a comprehensive range of competitive banking and financial services to meet the total needs of our customers in line with national aspiration and development.  To accomplish this, the bank will be innovative and forward looking; sensitive and adaptable to changing customer needs and market environment; committed to efficiency, cost effectiveness, profitability and social responsibilities; and capable of capitalising on new opportunities and challenges.



3.4    Core Businesses   


BPM’s core businesses are to provide agricultural loans, deposit taking through savings and time deposits and at the same time invest excess funds in allowable investment portfolio.





As a development financial institution, the mandate given to BPM is to develop and modernise the agricultural sector through easy access of agricultural credit.  This is in line with the government’s aspiration and policies to provide better quality of life for all Malaysians such as the National Agricultural Policy, National Development Policy and the Second Industrial Master plan.


The livelihood of rural population comprising of farmers, fishermen and livestock producers need to be improved and modernised.  At the early stage, BPM credit activities only encompass the special credit scheme to farmers engaged in planting paddy in the double cropping areas.  BPM’s financing were then expanded and various schemes implemented to include the other sub-sectors of agriculture such as for other crops, fisheries and livestock.   The scope of activities eligible for BPM’s financing covers all upstream and downstream agriculture and agriculture related activities.


BPM adopts and practices two-prongs approach in extending its loan and credit facilities to its customers. One is to assist smallholders, farmers, fishermen and livestock producers by financing their projects through special government interest schemes with favorable terms and conditions such as with low concessionary interest rate. The other is to provide loans to agriculture entrepreneurs and the private sector who are keen and interested to invest in agriculture projects at competitive commercial interest rates.


The special government interest schemes are usually realized, implemented and financed through funds allocated by the government to BPM to carry out certain specific development tasks.  While financing of the commercially viable agriculture projects at the competitive commercial interest rates are funded by the deposits mobilized by BPM itself.


The NAP3 launched in 1999 provides the policy framework for the growth of the agricultural sector up to the year 2010.  The sector’s targeted to achieve a growth of 2.1% per annum with a total investment of USD 8.4 billion and an estimated contribution of USD 5.5 billion from the private sector.  BPM has been directed to enhance its operation and play a more effective role in providing credit to the agriculture sector. BPM will be the anchor bank for financing agriculture projects under NAP3.


The government efforts to revitalize the agriculture sector as the third engine of growth has seen an increase allocation of USD0.39 billion in 2005 to the Ministry of Agriculture and Agro-based Industry, aimed of transforming and modernising the agriculture sector.  As one of the agencies under the Ministry, BPM will play an active role in financing projects implemented under the Ministry of Agriculture Incorporated concept.  In the light of the current development and in line with the current government policy, BPM’s focus would not only be in the primary production, but would be greater in the downstream activities.





The primary objective of BPM is to promote sound agriculture development through the provision of loans and advances for financing agriculture.  It has always been noted that availability of credit is not the main criteria to determine the success of any agriculture project.  Other underlying factors such as soil suitability, climatic factors, management and marketing also contribute to total success of a project. Good agricultural practice combined with the use of modern technology such as mechanisation, automation, high quality seeds or stocks, proper use of fertilisers, pesticides and weedicides could boost quality products and improve production. 


BPM has been in operation for the last 35 years and has played a significant role in the development of the Malaysian agriculture sector.  The bank assets grew from USD 2.68 million in 1970 to USD 1,340.18 million in 2003, an average growth of 8.3% per annum. Its loans asset expanded from USD 0.08 million in 1970 increased to USD 722.61 million in 2003 an average loans growth of about 10.4% a year.  Deposits placed with the Bank in the forms of savings, fixed deposits and Giro amounted to USD 37.39 million in 1975 and grew to USD1,111.97 million in 2000 but declined to USD990.71 million in 2003 (Table 1).  



Table 1

Total Assets, Gross Loans and Deposits.



















































As at December 2003, BPM had a total of 69,336 borrowers.  The target groups under special loans schemes, comprising of small farmers, fishermen and livestock breeders made up 42,237 (61%) of the borrowers.  The balance of 27,099 (39%) borrowers came under the commercial group.  In term of value, USD267.9 million (37%) was from the special group compared to USD454.6 million (63%) from the commercial group.





BPM has come a long way in carrying out its operation and functions in providing loans to the agricultural sector.  Some of the factors identified that had and could contribute in realizing the government mandate at the present moment and the near future are as follows:


6.1    Government Allocation and Support

Throughout its operation, BPM has been getting allocation of soft loans from the government.  This has enabled the bank to come out with special concessionary loans schemes to carry out and accomplish development tasks of uplifting the income and livelihood of farmers, fishermen and livestock producers and modernising the agriculture communities.


Some of special concessionary loans schemes developed and implemented by BPM are; Paddy Credit Scheme, Agriculture Special Credit Scheme, Tobacco Loan Scheme, Fund for Small and Medium Size Industries, Agriculture Mechanisation and Automation Scheme (MAP), Bumiputra Commercial and Industrial Community Scheme (MPPB), ASEAN-Japan Development Fund Loan, Fund For Food Loan Program (3F Loan) and the latest addition is the Micro Credit Scheme. 


For the last three consecutive Malaysia Five Year Plans, the bank received from the government allocation of USD32.29 million (6MP), USD12.31 million (7MP) and USD32.39 million (8MP) as shown in Table 2.



Table 2

Allocation Received by BPM from Government


Sixth Malaysia Plan


Seventh Malaysia Plan


Eighth Malaysia Plan





USD32.29 mil

USD12.31 mil

USD32.39 mil



6.2    Extensive Branch Network


BPM has 12 state branches, 119 branches, 20 sub-branches and 42 service centres distributed throughout Malaysia.  Extensive network distributed throughout the country has provided easy access to BPM’s loan, credit and banking facilities and help the bank in its deposit mobilization activities. With the development of information and communication technology (ICT), all branches are linked-up by computer system. 



6.3    Staff Strength and Dedication


As at August 2004, there are 2,583 employees working in the bank. The bank has tried to provide the best conducive working environment for its employees to work with the organisation.  Although in term of remuneration, the bank still follows the government salaries scale far below the banking industry, the conducive and supportive working environment has made the bank a great place to work.  These have resulted to employees working hard, dedicated and loyal in serving and achieving organization goals.  This human resource strength should be fully capitalized.



6.4    Technology


The fast development of information and communication (ICT) technology has not spared the banking industry.   Computerisation has set a new era of banking operation and delivery systems.  To keep up with the development, BPM has invested substantially to be at par with other banking institutions that can provide fast, efficient and quality services to its customers.





There are many internal and environmental factors which have contributed to underlying problems, constraints and opportunities in realizing BPM’s mandate.  Some of the underlying factors are:



7.1    Agreements of WTO and CEPT of AFTA


At the regional level in ASEAN, Malaysia was a signatory to the Common Effective Preferential Tariff (CEPT) agreement of the ASEAN Free Trade Area (AFTA) and at the international level the agreement on trade and agriculture of World Trade Organisation (WTO), both involved with regards to trade and agricultural liberalisation.  Malaysia has to abide the set agreements and deregulated its trade barriers.  The Opening up through liberalisation of the financial sector will invite new entrants of multinational banks backed by large capital.   BPM must find ways to be competitive, efficient and resilient to provide its service.



7.2    Regulations


The launching of the Financial Sector Masterplan (FSMP) on March 2001 by BNM, Malaysia Central Bank, came at a time Malaysia is at a threshold for a new stage of financial development.  It charts the future direction of the financial systems and outlines the strategies to achieve a diversified, effective, efficient and resilient financial systems due to changing environments. Under the FSMP, to strengthen the development financial institutions, BPM is to be put under Development and Financial Institutions Act (DAFIA), where the functions of supervisory and monitoring come under the jurisdiction of the central bank.  It is anticipated that fulfillment of the requirement of the DAFIA possesses great challenges to BPM.



7.3    BPM Act


7.3.1    Capital


BPM is currently undercapitalized.  It authorized capital stood at USD13.18 million and paid-up capital USD11.18 million.  Both the authorized and paid-up capitals have to be raised up base on the minimum 8% capital requirement of the banking system.  Injection of capital will position the bank as a prudent financial institution and able to play an active role and a pioneer in agricultural banking.



7.3.2    Business Risks


Due to its nature agriculture projects have higher credit risks.  The gestation period for its production is long and the prices of agriculture produces too are very volatile and unstable.  Projects failure due to climatic factors such as drought and flood; attacked by pests and diseases; perishable products and unstable market price are some of risks involved in implementing agricultural projects.  Failure of projects will affect repayment schedules and thus adds on to non-performing loans (NPL) classification of the bank.



7.3.3    Scope of Business


Confining to its Act, BPM scope of business limited only to agriculture production, processing, marketing and agriculture related business.  High risk factors couple with long terms period of projects return, unavailability of suitable cultivated lands, less incentives have attracted few private sectors participation to venture in the business.  High returns in manufacturing and service sectors have attracted foreign and local investors willing to venture in the country.



7.3.4    Cost of Operation


BPM adopted a supervised credit policy i.e.; projects would be visited and supervised from time to time by our officer.  This usually involved high operational cost especially for small projects.   



7.3.5    Banking Practice


BPM operates loans services, savings, time deposits and Giro system.  The bank is not a commercial bank and is not allow to operate current accounts, foreign exchange and foreign letter of credit under its present act. Amendment to the act or corporatisation of BPM will enable the bank to operate as any other commercial bank.  



7.4    Changing Customers’ Preferences


Customers’ preferences to products and services changes with time.  Changes in lifestyles, social status, age groups and technology have an impact to the selection of products and services offered to customers and the bank should always be sensitive to customers’ needs and wants.





8.1    Entity Change


To remain strong, sustainable and competitive BPM has to change with changing environment.  Since BPM was established under the act of Parliament, changing its entity has to be tabled to Parliament which usually takes time.  As a short term strategy, submission for amendment to the act could solve some of the problems faced by the bank such as undercapitalized and widening up its scope of operations.  On the latter stage, the possibility of the bank to be corporatised and established as a limited company under the Companies Act needs to be probed.



8.2    Strengthening of Organisation


Structural reforms by strengthening on human resources development to upgrade knowledge, skill and instill the corporate culture of professionalism, positive attitude, teamwork, responsiveness, individual development and timeliness would be enhanced and carried out seriously.  Quality workforce will produce excellence results and project good image of the organisation.   



8.3    Strengthening of Operation


To strengthen and improve its operation, BPM has adopted ISO Standard (9001:2000) to improve its services quality, restructure its loans operation by creating ‘hubs’ at state branches to monitor non-performing loans, established risk management division to better manage assets and liabilities of the bank, expand and upgrade its computerization system on development of ICT, establish executive information system (EIS) for better and effective decision making.       





BPM has charted its road map to guide its future directions to be competitive, sustainable and strong institution to face challenging environments domestically and globally.


In the first phase of the transformation journey involves BPM making the necessary amendment of its act.  The amendment of BPM Act to some extent would open up and resolve some impending problems faced by the bank.  The critical issue of under-capitalisation and widening its scope of operations would be the main focus of this agenda. 


The second phase, will be the corporatisation of BPM under the Companies Act.  The status change hopefully will enable the bank to better manage its resources and widen its scope of operations to meet the changing needs of its customers.





The future of BPM, the development financial institution mandated to play an important role of agriculture financing is to progress and remain sustainable with changing environments.  To face the global liberalisation, BPM has to broaden its operation, but above all, changing its entity is entirely depends to its owner, the government.  Amendment of its present act or corporatisation of BPM will enable the bank to broaden it lending activities, expand its scope of business not only focusing on agriculture but extended to other related banking activities.



back to HOME