This article first appeared in The Edge Malaysia Weekly on September 17, 2018 - September 23, 2018

EVEN before Malaya’s independence, the socioeconomic position of the Malays and other bumiputera communities had been at the forefront of the government’s policy. In 1951, the British colonial administration formed the Rural Industrial Development Authority (Rida) to help Malay farmers and rural folk.

Rida’s role and size were later expanded. It became Majlis Amanah Rakyat (Mara) in 1966 through an Act of Parliament. Mara went on to set up training colleges and workshops for the Malays and bumiputeras, and create business opportunities for them.

Fast forward to 2018, Mara is a behemoth for the bumiputera community as it owns a public university with branches in every state and territory in the country and numerous other vocational and technical training institutes as well as invests in businesses and assets.

However, some question its effectiveness in building a thriving bumiputera business and industrial community. After more than 50 years and spending billions of ringgit, can it be said that Mara has been a success for the bumiputera community?

The same question can be posed to the horde of agencies set up for bumiputeras over the decades. Associate Professor Dr Azeem Fazwan Ahmad Farouk, director of the Centre for Policy Research and International Studies of Universiti Sains Malaysia, says 94 agencies and 1,137 government-funded companies were set up to further the bumiputera economic agenda during the National Economic Policy period.

“But many have deviated from their goals ... sometimes, they go into projects that do not bring positive returns because they are headed by politicians or retired civil servants. And what happens is that they end up making political decisions, not business decisions [that are in tandem with the broader agenda],” he says.

One effect is overlapping roles among many bumiputera agencies. In the space of developing a thriving bumiputera commercial and industrial community, there is also Teraju, which was set up by former prime minister Datuk Seri Najib Razak.

According to its website, Teraju is tasked with driving and coordinating the participation of bumiputeras in the national economy, in line with the National Transformation Plan.

Meanwhile, Pelaburan Mara Bhd, a subsidiary of Mara, was established in 1967. It invests in companies and provides them with asset management and corporate advisory services to transform the businesses into lasting and sustainable entities.

This role seems to have been overlapped by Ekuiti Nasional Bhd (Ekuinas). While Ekuinas is involved in the private equity sector, the endgame is still the same as Mara and Teraju — to develop a thriving bumiputera business community.

A Mara senior executive says the reason for many of the more recent bumiputera agencies being set up was due to the lethargy at Mara. The agency is currently being reorganised and restructured under the purview of Minister of Rural Development Rina Harun.

“The reason they were created, especially in the past 10 years or so, was because the old Mara was not responsive to the challenges faced by the bumiputera community. So, EPU (Economic Planning Unit) created a whole bunch of them, including Teraju,” says the executive.

“However, even with more agencies, the bumiputera community is still lagging behind the Chinese and Indians. This is because many of the institutions are basically having the same programmes ... with more money, but not addressing the core issues.”

These issues include a lack of access to high-quality job opportunities, education and training for bumiputera households as well as fair growth opportunities, and achieving competitiveness among the bumiputera industry players, he adds.

So, does the bumiputera community still need these agencies?

One of the outcomes of the first Bumiputera Economic Congress in 1965 was the setting up of Bank Bumiputra Malaysia Bhd (BBMB). This was the answer to the socio-economic conditions at the time, whereby Malay businesses were finding it difficult to get funding from commercial banks.

Malays and other bumiputera communities then did not have the required capital to start businesses. All they had was land, which, due to the British policy of segregation of ethnicities along economic lines, was not valuable to be used as collateral for bank borrowings.

Even in Kuala Lumpur, Malay land parcels were in far-flung corners, which had little value to the banks. Some in the heart of the city, such as Kampung Baru, were difficult to collateralise due to their Malay reserve and agricultural status.

Despite knowing the little value the land titles had, BBMB accepted them as collateral for Malay and bumiputera businesses to get funding. Loan growth at the bank shot up from just RM7.9 million in 1966 — when the bank started operations — to RM181 million in 1971.

In 1981, loans given out by BBMB hit RM6.3 billion. The bank had managed to play its role as the premier financial intermediary for Malay and bumiputera businesses, supporting the government’s effort to create a bumiputera commercial and industrial community.

However, its flexible attitude towards loan recovery caused its non-performing loans to be as high as 25% during the Asian financial crisis. This lackadaisical attitude in recovering loans also meant that many of its customers were delinquent in servicing their obligations.

After the financial crisis, BBMB merged with Commerce-Assets Holdings Bhd’s Bank of Commerce to form Bumiputra-Commerce Bank Bhd. With the professional management from Commerce-Assets, the new bank managed to get back on track and become a fully commercial bank.

This means that the socioeconomic responsibility attached to BBMB ended after the merger. While Bumiputra-Commerce continued to play a role in developing bumiputera businesses, this was no longer done at the expense of the bank’s financial stability.

In 2005, Commerce International Merchant Bankers Bhd (CIMB) acquired Bumiputra-Commerce. A year later, CIMB acquired Southern Bank Bhd to become what is now known as CIMB Group Holdings Bhd, Malaysia’s second largest banking group by asset.

Initially, when BBMB was forced to merge with Bank of Commerce, many in the bumiputera business community lamented at the decision by Bank Negara Malaysia as they feared their economic position would be jeopardised.

However, this proved not to be the case as the bumiputera businesses continued to thrive under favourable government policies, even without a bank specifically set up to assist them in financing. The bumiputera business community has graduated from needing a BBMB.

“I think the main thing to learn from the failure of BBMB is that we need to look at developing the bumiputera community from an economic standpoint. While banks provide ready fuel for the economy, the industries provide the engine,” says an official who is working at reorganising Mara.

“The solution is to undertake economic development, which is the original Mara mandate — and stated in the Act. Once you do that, the other institutions can be organised by way of consolidation, restructuring and growth.”

Reforms needed at bumiputera development agencies

The implementing agencies must also undergo reforms. Ultimately, they should be distanced from political influence and properly staffed by professionals, instead of politicians and bureaucrats.

Otherwise, they stand the risk of failing to execute their mandates due to two major risks.

First is the potential hijacking of a national agenda for the benefit of the few, which was manifested in the enrichment of the well-connected through the decades while the progress of most bumiputeras remains stagnant.

This hijacking partly explains why bumiputeras remain relatively behind in Malaysia despite the horde of government agencies and government-funded companies set up to push the agenda since 1970.

“In some cases, the instruments themselves became the solution [in terms of providing jobs and such],” says economist Dr Nungsari Ahmad Radhi. “It became about giving instead of developing.”

The second risk lies in possible incompetence. Through the years, the agencies that did assist bumiputera entrepreneurs were in turn suffering from execution challenges as they were predominantly staffed by bureaucrats, says Azeem.

“All this while, the agencies assisted the entrepreneurs from the beginning to the end, so they don’t learn and grow. One reason why bumiputera entrepreneurs are not as successful as the other races is because they are not genuine entrepreneurs but creatures of the state,” he adds.

That means that while leg-up assistance such as access to capital should continue, the hand-holding must end. Bumiputera entrepreneurs must be allowed to succeed or fail on their own terms to create a vibrant, sustainable commercial and industrial community.

The development of the bumiputera community is paramount to ensure that the economic growth of the country is sustainable. This is because by 2050, bumiputeras are expected to make up 80% of Malaysia’s population, up from the current 70%.

Therefore, the bumiputera agenda is a national agenda. All parties must ensure that this agenda will be a success this time round, now that the country, under a new government for the first time since independence, has a chance to reinvent itself.

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