This report assesses and analyzes thecurrent state of the Malaysian university system and makesrecommendations on ways to further strengthen existinghigher education institutions. It looks in particular at thepolicy framework needed to support the growth anddevelopment of the higher education system which include thelegal framework, quality assurance systems, incentives forinvestment, R&D policies, financing mechanisms that helplow income students access education, and public financingprograms that direct subsidies to strategically importantinstitutions or fields of study. This report aims toidentify key challenges and appropriate solutions whichcould constitute relevant policy advice for the Governmentof Malaysia. It concentrates on the higher education sector,including both public and private universities.Notwithstanding the overall focus on the university sector,the study makes occasional reference to the wider concept oftertiary education system as needed. It also makes referenceto the broader concept of a national innovation system(NIS), and devotes considerable attention to a number ofcritical issues related specifically to the way thatimprovements in the performance of higher educationinstitutions can lead to an overall better performance ofthe NIS. The report is organized into two main parts. Itstarts with a diagnosis of the present situation, relying ona range of key indicators to benchmark Malaysia'snational innovation and higher education systems againstselect OECD and East Asian countries and on an in-depthanalysis of the universities' main strengths and areasof weaknesses. The second part provides policyrecommendations and detailed action plans to improve theMalaysian higher education system, with special attentionpaid to the research and innovation nexus, graduateemployment, quality assurance systems, financing mechanisms,and the governance and management framework.