5) Analysis on the product and services offered by the BANK RAKYAT.

5.1 SITUATIONAL ANALYSIS

This part will discuss the organisation background and the analyse its product and
services, financial performance and other capability. Also the IS related problems faced
by the bank.

5.2 THE ORGANIZATION: Bank Kerjasama Rakyat (M) Berhad.

Bank Kerjasama Rakyat (M) Berhad, Bank Rakyat was established in September 1954.
Originally named Bank Agong, it became Bank Kerjasama Rakyat Malaysia Berhad
(Bank Rakyat) on January 1973. The Bank Kerjasama Rakyat Malaysia Berhad (Special
Provision) Act of 1978 had placed Bank Rakyat directly under the Minister responsible
for Co-operative Development, presently the Ministry of Land and Co-operative. The
shareholders of the Bank are individual members and co-operatives.
The principal activities of the Bank mentioned in the its 1997 annual report are those of
a co-operative which carries out conventional banking activities such as accepting
deposits and providing personal, agricultural, property, commercial, leasing and other
loan facilities. The Bank also carries out banking activities based on Islamic (Syariah)
principles such as accepting deposits and providing personal, property, pawnbroking
and other banking facilities. Bank Rakyat is one of the very few financial institutions to
have offered full-fledged Islamic banking and financial services throughout its network.
The Bank is constantly improving its procedures and mechanisms to further enhance
the overall development and growth of Islamic banking in the country. Basically, the
Bank confines itself to retail banking specifically acceptance of deposits and providing
loans to customers at its 74 branches located in East and West Malaysia.
5.3 SWOT analysis

This part will present the SWOT analysis on the organization as summarized in Table
5.1. An assessment of strengths and weaknesses reflect the Banks internal capability
while, the assessment of opportunities and threats provide the environmental scanning
process. The discussion begins with its strengths namely its product and services,
financial strength and loan collection capability.

STRENGTHS WEAKNESSES
PRODUCT & SERVICES Inefficient IS
PERSONAL LOANS Loan processing
DEPOSIT (MUDHARABAH)
LOAN COLLECTIONS (BPA) Payment posting

Opportunities Threats
Islamic banking Mergers and acquisition
E-Commerce Foreign banks
Database marketing/Data mining -growing BPA facilities open to others
competition and lower profitability

Table 5.1 SWOT ANALYSIS

5.4 PRODUCT AND SERVICES

The products and services can be considered as one of the Bank strength. The Bank
provides an array of products and services like any other conventional banks in
Malaysia. It can accept deposits from public and give financing to individuals, firms, co-
operative and even government body. Bank Rakyat personal loan is one of the popular
among government servants. Bank Rakyat accommodates convenience way to pay
back the loan by cutting of their monthly wages. However the products and services
offered by the Bank are limited to those allowed by the various laws and regulations in
the country specifically, the;

Banking and Financial Institutions Act 1989 LBAFIA),

Co-operative Act 1993,
Bank Kerjasama Rakyat Malaysia Berhad (Special Provision) Act 1978,
Bank Rakyat By-Law.
Bank Rakyat is grouped under the development bank category together with Bank
Pembangunan Malaysia (BPM), Bank Pertanian Malaysia (BPM) and Bank Industri
Malaysia (BlM).

STRENGHT
1. Financing: Personal, agricultural, property, commercial, leasing
Bank Rakyat has always been known as the bank that provides personal financing to
individuals who works in the government sectors and established private firms. The
most popular and known product is the personal loan where individuals can get cash
loan up to RM35, 000 based on their monthly salary. The fast and easy financing has
made the product as the bestselling product for Bank Rakyat since its inception.
Its Success is contributed by a number of factors namely.
The amount offered is higher than what other institution are allowed to offer
under the BAFIA Act 1989 (not exceed RM10, 000).
Its a cash loan that allows the borrower to use on any purpose such as for house
renovation or for car down payment.
Unsecured loan compared to collateral based loan.
The fast and easy processing.
The monthly repayment via salary deduction eliminates the hassle of having to
go to the bank.
The product provides high returns the bank because the collection mechanism ensures
prompt payments. The collection is done through a third party call Biro Perkhidmatan
Angkasa (BPA). The statutory body was founded to promote co-operative movement
and to provide the machinery for collecting payments on behalf the co-operative at a
small percentages on the collected amount. The channel allows bank rakyat to secure
their loan payment with little or no risk of default. The product stands at almost 80% of
the bank total loan. Figure 5.1 shows how the system of collection via BPA works.
Other financing facilities like agricultural loan, property, commercial and leasing also
has been well received by the public. Another popular product is the Islamic pawn
broking known as Ar-Rahnu. Pawn Broking-i Ar-Rahnu another product of Bank Rakyat
provide , offers fast and easy cash financing up to RM50,000 with low safekeeping fee
charges based on 3 Syariah principle. interest free loans (Qard) , savings with
guarantee on the pawn items (Wadi`ah Yah Dhamanah) and safekeeping fees (Ujrah).
It offers options to consumer from the conventional practices. The modest and small fee
has attracted a steady flow of customers especially at the beginning of school sessions.
Figure 5.1 Collections through BPA

BORROWER EMPLOYER BPA BANK RAKYAT

(Authorization) (Deduction) (Collection) (Payment)

1. DEPOSITS: SAVINGS ACCOUNT, GENERAL INVESTMENT ACCOUNT.

Bank Rakyat sources its deposits mainly from its Al-Wadiah Savings Account and Al-
Mudharabah General Investment Account (fixed deposits). Like any other savings
account found in conventional banks it provides profits payment and use of Automatic
Teller Machine (ATM). The fixed deposits facilities has been giving competitive returns
to the depositors and has been successful in attracting large deposit from government
and private sectors since Bank Rakyat is not allowed to source its funds from the
current account operations, these two products are important source of fund. High rates
of returns and personalize marketing are the key to attract depositors.

2. CREDIT MANAGEMENT: COLLECTION VIA SALARY DEDUCTION

THROUGH BPA

Bank Rakyat is the only bank allowed to collect their loan repayment through salary
deduction via the Biro Perkhidmatan Angkasa. This is beause the facility can only be
enjoyed by the co-operative registered under the cooperatives act 1993. Bank Rakyat
as a co-operative can consider their uniqueness as a blessing and strength. The facility
has given Bank Rakyat the edge over their competitors in selling its product targeted to
the government servants. Futhermore, the facility reduced the rate of default to almost
to none and this is important and profitable to the bank.

5.6 WEAKNESSES

Bank Rakyat similar to other organization focused a number of problems at strategic,

business and operation levels.

1. High transactional processing volume/payment posting

Bank Rakyat Is focused on retail banking services specifically servicing the public
needs. The volumes of transaction are large compared to banks that caters smaller
market segment for example the corporate and business emphasis is to provide quality
services at lowest cost. To achieve these goals, they need ti think about the efficiency
and economy of scale.
 Loan application and processing.

The number of loan application varies from branch to branch depending on the area of
coverage and targeted loan amount to be given out by each branch. Each application
has to be assessed individually by the processing officer and forwarded to the
approving committee or respective authority.

After the approval the processing clerk will prepare the letter of offer to the customer.
Upon acceptance the bank will prepare all the necessary documentation and
disbursement of loan. The process for personal loan usually takes about one to two
weeks depending on the volume of applications. The bigger the volume the longer it
takes for the branch to complete the process. Bank Rakyat has embarked on a
campaign to speed up the processing period to less than seven working days in order to
increase customer satisfaction and quality of services. However this has been a futile
effort since most of the process id done manually with little automation capabilities.

Payment posting/BPA.

On the collection side the posting of payment s are still manually key in the loan
systems. Bank is unable to come up with the solutions to electronically post the data
from Biro Perkhidmatan Angkasa (BPA) to its loan systems. This tedious job not only
ineffective but also exposed the bank to human errors. Branch manager complained
that due to the constraint, the branch has to allocate staff specifically for the task. Some
even has to apply for additional staff thus, increasing their overhead.

5.7 OPPORTUNITIES
islamic Banking.
Bank Rakyat has embarked into Islamic banking since 1993 and had been the
opportunity to penetrate the market both muslim and non-muslim. Product innovation
can be the underlying factor in expanding its market share. Islamic banking offer great
opportunity to Bank Rakyat to become the leader in this banking sector.
E-Commerce.
The electronic commerce or better known as e-commerce can be defined as the use of
computer networks to conduct business. The concept is still new in the country but it
wont be long for the consumers to accept it in daily life. Bank Rakyat can be prepare
and grasp the opportunity when the time comes.
 Database marketing/Data mining.
The banking industry has been known to compile extensive data on their customers
through its comprehensive application forms. Example to open an account or applying
for loan. Although banks have employed statistical analysis tools with some success but
previously unseen patterns of customer behavior are now coming into focus with the aid
of new data mining tools. Data mining is the automated analysis of large data steps to
find patterns and trends that might otherwise go undiscovered. By studying these
pattern and trends, banking executives can predict with increasing precision on how
customers will be most receptives to new product offers, which customers present the
highest risk for defaulting on a loan, and how to make each customer relationship more
profitable. All these pattern and trends will help the bank come up with the right pricing,
product, promotion, abd timing. The opportunity is huge fro retail bank like Bank Rakyat.

5.8 THREATS
1. Mergers and acquisition
Recently the bank Negara has announced to merge the domestic commercial banks
and finance companies in preparation for the competition expected from the foreign
banks. The government hinted that Bank Rakyat and other development banks might be
involved in the program. For example, bank islam Malaysia berhad (BIMB) was
repeatedly mentioned to merge with bank rakyat by a number of ministers.
2. Competition from foreign of ministers
The threat is very real for the domestic bank especially the smaller domestic banks.
Bank Rakyat has to be prepared by increasing its efficiency and effectiveness in their
market segment.
3. BPA facilities open to others.
The bank has been enjoying the BPA facility by virtue of being a co-operatives. The
facility provides the bank its competitive advantage in the financing business. However
this may not last if Angkasa decides to open its door to other banks or business entities.
This institution might offer the same or better package to compete directly with bank
rakyat. Bank rakyat has to properly plan for face future challenges.