Medium, small, and micro enterprises (MSMEs) make up 99% of total business in Malaysia. MSMEs also employ north of 7 million people, or, a staggering 65% of the employed population. 


To quote SME Corporation Malaysia’s definition, “it refers to firms with sales turnover not exceeding RM20 million OR number of full-time employees not exceeding 75”.

Another large sector of the Malaysian economy is the informal sector – characterised by economic activities outside legal purview – with an estimated 3.5 million workers. Because of the lack of formal arrangement, these workers do not enjoy benefits from law or social protection (insurance such as EPF SOCSO). 

Examples of informal workers include domestic workers, street vendors, and even the self-employed. At the peak of the pandemic, among the most pressing economic issues was how MSMEs could be sustained when so few of them were digitised and consequently had to close-shop. In May 2020, Malaysia’s unemployment reached an all time high of 5.3%; a devastating period when suddenly, people found themselves without income but still with a houseful of mouths to feed. In 2020, although everyone faced a lockdown, not everyone felt it in equal magnitude; those already disadvantaged in pre-covid times and especially low-skilled or informal workers were the hardest hit.

This is where financial inclusion enters – to ensure equitable development across all sectors and demographics.

To quote the World Bank, the definition for financial inclusion is:

“Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.”

TLDR; without credit access, an agricultural business for example, would not be able to obtain loans for their seeds or fertilisers.

Without banking service access (including financial literacy and infrastructure), individuals would have no savings for their child’s education or insurance to protect themselves in emergencies. Ultimately, this results in social inequalities being exacerbated as underprivileged groups miss out on resources for upward social mobility.


The broadest, most at risk group would be the unbanked (unserved) and underbanked (underserved) in Malaysia – comprising around 12.5 million adults.

Hence, the end-goal of financial inclusion is to not only reduce the number of unbanked or underbanked, but to also ensure that target, vulnerable groups remain resilient in the face of economic fluctuations, thus alleviating poverty.

Promoting national financial inclusion is one of Bank Negara Malaysia’s (BNM) core functions.

What BNM is doing:


Digital Divide as the Ultimate Hurdle for Financial Inclusion

Digital infrastructure is the most vital precondition for development in the present age. Without a digital device or internet access to online learning resources, students fall behind. Meanwhile, teachers get flooded with tasks that could’ve been streamlined by technology, eating into energy that could’ve been otherwise invested in their students.

As schools become dilapidated, employment remains low or at a low-income, and the economic prospects of the area stagnate. Banks, the providers of financial credit, are the most capable of empowering economic activity here but, how come we don’t see more commercial banks setting up more branches in rural areas?

Problems shared by both demand and supply sides for financial services in rural areas include: lack of financial literacy and of proof documents, as well as poor internet connectivity. Other supply-specific problems include; high costs of setting up and high default risks. Demand-specific problems include; a lack of confidence and the misuse of capital. These cascading issues can be traced back to the lack of digital infrastructure.

Whilst Kuala Lumpur is a metropolitan capital, sadly, the rest of Malaysia couldn’t look more starkly different. For example, while the national average for broadband penetration is 127.1%, Sabah’s is only at 81.2%.

(To read more on this issue, head to WikiImpact’s ‘Impact Sabah’)

Hence, the issue of financial inclusion cannot be addressed in isolation but must also take into account the environmental factors of the most underserved demographics.

This calls for a cohesive effort between major stakeholders in telecommunications, financial institutions, and city planning, lest we wish to see the rest of Malaysia to be left in the dust.

To quote former BNM governor, Zeti Aziz, in her 2014 keynote address for AFI’s global policy forum:

“Economic growth, no matter how stellar, will begin to fade when inequality sets in, and as income disparities widen.”

And in a webinar for MIT Sloan in 2021:

“There is (also) no shortcut solution for addressing rising inequalities … the responsibility of addressing inequality shouldn’t fall solely on the central bank. The central bank should interface with other agencies but establish clarity on who is responsible for what.”


Researcher(s): Jennifer Ley

Reviewer(s): Muhammad Bahari

Editor(s): Maryam Nazir Chaudhary

Designer(s): Sonia

  1. Malaysian Digital Economy Corporation. [cited 2023Jan27]. Available from: 
  2. Oecd. Malaysia MSME [Internet]. OECD iLibrary. OECD; 2022 [cited 2023Jan27]. Available from:  
  3. Issues and Challenges of Financial Inclusion Among Low-Income Earners In Rural Areas of Malaysia, Sharizan S., Turkish Journal of Islamic Economics, Vol. 8, 2021
  4. Digital divide sabah. Wiki Impact. [cited 2023Jan27]. Available from:
  5. Department of Statistics Malaysia. [cited 2023Jan27]. Available from:
  6. Tapping into the potential of digital banking, The Star, June 06, 2022

Leave a Reply

Your email address will not be published. Required fields are marked *

Interested in achieving financial literacy?

Subscribe to us now!

Interested in achieving financial literacy?