The monsoon season has once again wreaked havoc across Malaysia, with the East Coast bearing the brunt of torrential rains.
Over 83,000 people have been displaced, seeking refuge in temporary shelters, while businesses grapple with damaged infrastructure, disrupted supply chains, and mounting financial losses.
These recurring floods are signs of a growing crisis that has been further amplified by climate change.
With warnings of a second wave of floods looming, the urgency for an effective disaster relief framework has never been clearer.
Plus, with Malaysia, who are currently in the midst of navigating its transition toward a digitally focused economy, is now presented with both unique opportunities and challenges addressing disaster response.
Bank Negara Malaysia (BNM) estimates that floods could cost the nation up to 4.1% of GDP by 2030 if left unaddressed with the small and medium enterprises (SMEs), arguably going to take the most toll.
This is due to them having the lack of financial resources or preparedness needed to recover swiftly from such events, which can perpetuate cycles of economic stagnation and inequality.
While the government has made strides in disaster relief through programmes like the Malaysia Disaster Relief Facility (DRF), there remain significant gaps in efficiency and inclusivity.
In this context, financial technology (fintech) offers an opportunity to transform disaster response. Through digital tools, we might see enhanced speed, transparency, and resilience in disaster recovery efforts.
However, as seen in China’s cashless economy, their over-reliance on technology without some sort of robust contingency measure has proven to backfire.
Malaysia is now in the race against time as they now must strike a careful balance in trying to integrate fintech into its disaster relief strategies.
The Flood Crisis Is An Urgent Need for Reform
Floods are not new to Malaysia.
Their increasing frequency and severity, driven by climate change, have escalated them into a persistent economic and humanitarian crisis.
The Malaysian Meteorological Department (MetMalaysia) warns that heavy rainfall from the northeast monsoon will continue to intensify, with events previously considered 1-in-100-year occurrences is now becoming a regularity, with it looking more like a 1-in-25-year phenomenon.
The impacts of these floods are far-reaching. Beyond displacing communities and claiming lives, they also, as we know, inflict substantial economic damage.
The World Bank, together with BNM, compiled a report which details how floods disrupt business operations by damaging inventories, machinery, and infrastructure while also depressing consumer demand.
SMEs are disproportionately affected, as they lack the financial reserves and insurance coverage that larger businesses often have. These disruptions cascade through supply chains, exacerbating unemployment and deepening economic inequalities.
Although government initiatives like the DRF do provide some sort of critical support, many affected individuals and businesses, however, still remain outside the safety net.
In rural areas, for instance, limited digital and financial inclusion further hinders access to relief funds. Thus, bridging these gaps requires an innovative approach that prioritises not just efficiency, but also equity and resilience.
Malaysia Disaster Relief Facility Is Progress with Room for Growth
Reaching Underserved Areas
The Malaysia Disaster Relief Facility, established by BNM is a cornerstone of Malaysia’s disaster relief efforts.
It provides the much-needed financing to SMEs that are affected by natural disasters, enabling them to rebuild and recover.
However, in some instances, the facility’s effectiveness can be constrained by structural and operational limitations.
According to the report, one key challenge is the DRF’s reliance on traditional banking networks, which often fail to reach rural or underserved areas.
Many businesses and individuals are unaware of the facility or lack the financial literacy needed to access it.
Simplifying application processes and integrating the DRF with fintech platforms could significantly enhance its accessibility. For example, using mobile payment systems for real-time disbursements would ensure that funds reach beneficiaries quickly and efficiently, even in remote locations.
Integrating Insurance into the DRF Framework
Another area ripe for improvement is the integration of insurance into the DRF framework. Many businesses in flood-prone areas operate without adequate insurance, either due to cost barriers or a lack of awareness.
Embedding digital insurance products, such as parametric insurance, within the DRF could also close this gap, hence, providing a comprehensive safety net for flood-affected communities.
Suhaimi Ali, Assistant Governor, Bank Negara Malaysia said that parametric insurance differs significantly from traditional insurance or takaful.
Parametric insurance gives greater certainty and allow money to reach policyholders faster through near-automatic payment.
“According to a U.K. study by the Department of International Development, payments from a parametric insurance policy can be 3.5 times more effective in disaster response than delayed payments from aid. For victims, this speed can have a decisive impact on livelihoods,” Suhaimi said.
This means that instead of compensating for the actual loss incurred, parametric insurance provides payouts based on predefined triggers, such as rainfall exceeding a specific threshold or river levels crossing a set point.
The approach ensures faster disbursement of funds, as it eliminates the lengthy claims assessment processes associated with traditional insurance.
For SMEs operating in flood-prone areas, parametric insurance acts as a financial safety net, enabling them to resume operations quickly and minimizing disruptions to the supply chain.
Learning from Global Best Practices
Malaysia can also draw valuable lessons from global experiences in integrating fintech into disaster relief.
After the Turkey-Syria earthquake, crypto donations were instrumental in facilitating and providing fast relief assistance to those affected.
Similarly, during the 2022 Pakistan floods, some platforms have enabled NGOs and international organisations to channel aid directly to affected communities, ensuring rapid and efficient fund disbursement.
Closer to home, the Southeast Asia Disaster Risk Insurance Facility (SEADRIF) offers a regional example of how parametric insurance can be scaled effectively.
SEADRIF provides member countries with immediate financial support based on pre-agreed triggers, showcasing how fintech can enhance regional disaster resilience.
These examples highlight the importance of collaboration between governments, fintech companies, and international organisations in building robust disaster response systems.
Fintech as a Catalyst for Transformation
Mobile Payments and Crowdfunding
Fintech has the potential to revolutionise disaster relief by addressing inefficiencies in traditional frameworks and enabling faster, more transparent, and inclusive solutions.
Digital platforms empower governments, organisations, and communities to respond to crises with agility, ensuring aid reaches those in need without delay.
In Malaysia, mobile payment systems like DuitNow are already integral to the financial ecosystem. These platforms allow for near-instant fund transfers, hence, are able to reduce delays associated with manual or cash-based distribution methods.
Similarly, crowdfunding platforms like KitaBisa in Indonesia have demonstrated the ability to mobilise resources swiftly.
We can also see this instance in Malaysia, where local crowdfunding efforts have raised significant funds for disaster relief during previous flooding incidents, showcasing the public’s willingness to contribute when trusted, transparent mechanisms are available.
DITO: Bridging the Protection Gap
Beyond these existing solutions, Malaysia is also taking proactive steps to further enhance its disaster resilience through the introduction of the Digital Insurers and Takaful Operators (DITO) framework by BNM.
DITO aims to address critical protection gaps, including those related to flood risks for SMEs and the agricultural sector. This initiative is part of the Financial Sector Blueprint 2022–2026 and reflects BNM’s commitment to fostering inclusion, competition, and efficiency in the insurance landscape.
For SMEs and agricultural businesses, the introduction of DITO-driven parametric insurance could be a turning point. Such products ensure faster payouts, especially for floods and other climate-related risks, reducing the financial strain on these vulnerable groups.
As BNM begins accepting applications for DITO licenses in 2025, this framework will likely complement existing disaster relief efforts, such as the Malaysia Disaster Relief Facility.
Balancing Innovation with Contingency Planning
However, do bear in mind that although fintech’s integration into disaster relief is something amazing, it still needs some looking after.
Take a look at Super Typhoon Yagi, which occurred not so long ago in China. It serves as a sobering reminder of the risks associated with over-reliance on digital systems.
During the typhoon, power and network outages left many residents unable to access funds or purchase essentials in a cashless society.
Such incident underscores the need for redundancy planning, where digital solutions are complemented by offline capabilities or hybrid cash-digital models to ensure continuity during infrastructure disruptions.
A Fintech-Driven Roadmap for Resilience
Malaysia must take a comprehensive approach to address flood risks. This involves integrating fintech with a much broader Malaysia Disaster Relief Facility.
The first step is establishing clear priorities. The country also needs to strengthen institutional coordination. Improving access to flood risk data is crucial. Responsibilities across national and local authorities must be clarified. Fostering public-private partnerships is also key. These actions will create a foundation for long-term resilience.
Detailed investment plans are needed. The country should also use innovative financial instruments. Disaster risk finance frameworks can enhance readiness. They can also minimize economic losses.
The financial sector must play a central role in adaptation. Regulators should focus on enabling resilience. This can be done through better data and regular flood risk assessments. Policies should align climate-related financial interventions with sustainability goals.
SMEs are the most vulnerable segment. Tools like credit guarantees can help. Concessional financing and parametric insurance are also useful. These tools ensure SMEs have the financial means to recover.
Expanding insurance coverage will strengthen financial resilience. This should be done through affordable solutions. Takaful and parametric insurance are good options. Collaboration between the government and insurers is vital. This will fill gaps and ensure protection against future floods.
Managing flood risks requires coordinated action. Fintech provides tools to enhance efficiency and transparency. It can also improve inclusivity in disaster relief. However, these tools must be supported by robust policies and infrastructure.
Malaysia is transitioning to proactive disaster management. Fintech integration is important. So are financial and institutional reforms. Together, these offer a path to sustainable and inclusive growth.
The time to act is now.
Featured image credit: Edited from Pexels
