Bank Negara Malaysia (‘BNM’) issued a Policy Document on Trade Credit Insurance and Trade Credit Takaful (‘Policy Document’) on 3 May 2019 which took effect on the same day.
 
Trade credit insurance or trade credit takaful refers to insurance or takaful cover that protects –
 

The Policy Document applies to the following entities which are licensed under the Financial Services Act 2013 (‘FSA’) and the Islamic Financial Services Act 2013 (‘IFSA’), as applicable –
 

The Policy Document sets out–
 

Approval to conduct trade credit insurance or trade credit takaful business
 
A licensed insurer or takaful operator is required to obtain the prior written approval of BNM under section 14(3) of the FSA and section 15(3) of the IFSA respectively in order to carry on trade credit insurance or trade credit takaful business. A licensed insurer who has received approval to carry on trade credit insurance pursuant to the circular entitled Pengeluaran Bon / Jaminan Kewangan oleh Penanggung Insurans (BNM/RH/CIR/003-7) issued on 11 August 2007 (‘Circular’) is deemed to be approved under section 14(3) of the FSA.
 
The information to be submitted in an application for approval to carry on trade credit insurance or trade credit takaful business is set out in Appendix 1 of the Policy Document. The applicant must also satisfy BNM that it has adequate technical capability to underwrite credit risk. An applicant who enters into a collaboration with a foreign financial institution to offer trade credit insurance or trade credit takaful must ensure that it has a clear and structured plan to develop its own underwriting expertise.
 
Unless otherwise specified by BNM, the annual gross premium of trade credit insurance or contribution of trade credit takaful business shall not exceed 10% of a licensed insurer’s total gross premium or of a takaful operator’s contributions of the preceding calendar year.
 
A licensed takaful operator must also ensure that it offers trade credit takaful in a Shariah compliant manner.
 
Treatment of trade credit insurance and trade credit takaful by banking institutions
 
A banking institution is permitted to recognise trade credit insurance or trade credit takaful, as the case may be, as CRM under, in the case of a banking institution or a financial holding company under the FSA, the Capital Adequacy Framework (Basel II – Risk Weighted Assets) and in the case of a banking institution or a financial holding company under the IFSA, the Capital Adequacy Framework for Islamic Banks (Risk Weighted Assets).
 
Amongst other matters, the credit adequacy frameworks mentioned above set out the criteria that are to be satisfied in order for trade credit insurance or trade credit takaful to be recognised as CRM. For example, the licensed banking institution must be both the policy owner or takaful participant and person covered, and the licensed insurer, licensed takaful operator or prescribed development financial institution must have a minimum rating of BBB-.   
 
Circular partially superseded
 
The Policy Document supersedes paragraph 3 of Part B of the Circular.