Financing Policy for Small Holders of Palm Oil in Malaysia

Cluster Research Grant, 2017

Abstract

Malaysia accounts for about one-third of global palm oil production. It is the world’s second largest palm oil producing and exporting country after Indonesia. In 2016, Malaysia accounted for 30% of global palm oil production and 37% of global palm oil exports. Production of Crude Palm Oil (CPO) remained at 17.4 million tonnes in 2016 while the palm oil exports remained at 16.1 million tonnes. The export revenue in 2016 from palm oil exports was recorded at RM 65 billion. The palm oil sector also contributes 8% to the country’s total merchandise exports. More than 600,000 people are employed directly in the palm oil sector in Malaysia. It makes up 77% of agricultural land or about 15% of total land area in Malaysia. Oil palm plantations currently occupy over five million hectares, while palm oil accounts for almost 6% of Malaysia's Gross Domestic Product (GDP). Unlike in developed countries, smallholders are one of the major players in palm oil sector in Malaysia. Given the importance of smallholders in the palm oil plantation, this study endeavors to i) identify the problems encountered in palm oil plantation in the pre-financing and post-financing stage by small landowners in Malaysia, ii) map the targeted needs with particular Islamic finance product mix, iii) investigate the relative strengths and weaknesses of different financing structures and their suitability in different contexts and iv) recommend policy steps for the government and financial institutions to fill the financing gap in order to increase land utilization, production and sustainable livelihood.

Project Leader

Muhammad Hakimi Mohd. Shafiai (Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), hakimi@ukm.edu.my)