Easy access to personal loans and credit cards is one of the main reasons for Malaysia’s rather high household debt level, according to an economist.
Making the situation worse is the numerous illegal loan sharks or Ah Long, from whom personal loans are readily available but at steep interest rates, said Shazali Abu Mansor, who is the dean of the Economics and Business Faculty at Universiti Malaysia Sarawak.
He said debts incurred through loans taken from Ah Long and credit card spending need close monitoring as they can have a negative impact on household debt.
“These days, even fresh graduates can apply for credit cards and this makes it easy for them to buy stuff online,” he said, adding that what he was really concerned about were the loans secured from loan sharks.
“Because they are illegal and unregulated, no one is monitoring these Ah Long. And, the worrying part is we don’t know how much of household debt consists of loans taken from Ah Long,” said Shazali, adding that it was time the authorities zeroed in on household debt arising from loans procured from unregulated sources.
It was reported last month that Malaysia’s household debt was among the highest in Asia, currently standing at 89 per cent of the gross domestic product.
Bank Negara Malaysia (BNM) Governor Muhammad Ibrahim had said that the household debt was one of the areas being monitored by the central bank on a regular basis.
Shazali said he was also concerned that many consumers were taking loans to buy luxury goods, hold lavish weddings and spend on other unnecessary, in an effort to “keep up with the Joneses”.
“Perhaps the relevant agencies (banks and financial institutions) should rethink their loan approval mechanism and provide their customers with a deeper understanding of the concept of debt, thereby educating them to spend prudently,” he told Bernama.
Pointing out that debts could either be productive or unproductive, Shazali said the former included housing loans and loans taken to purchase Amanah Saham Bumiputera units that yield good returns.
“Those loans taken to buy luxury goods, etc. are unproductive as they don’t yield any returns and only serve to burden the individuals concerned,” he said.
Head of Universiti Putra Malaysia’s Department of Resource Management and Consumer Studies Association Mohamad Fazli Sabri also blamed materialism for compelling people to live beyond their means and get heavily in debt.
“Some people get carried away by their material pursuits and often buy things that they can’t afford, just because their friends have them.
“There’s also a tendency for such people to take loans to invest in, what appears to be, shady investment schemes that promise huge returns and in the end, they get their fingers burned,” he said.
Mohamad Fazli said an individual would be treading dangerous territory if their total debt exceeded 40 per cent of their gross income.
“But they are safe as long as they make the repayments on time,” he said, adding that indebtedness was not necessarily “a bad thing” if the loans were utilised for good purposes like funding higher education or buying a house.
“Of course, it’s a different story if one gets into debt just to buy branded items.”
Mohamad Fazli also urged the public to check their current credit records via the Central Credit Reference Information System (CCRIS), a computerized database system created by BNM providing credit information on all borrowers in Malaysia.
“It’s important that they check their status via CCRIS from time to time because some people may have forgotten exactly how many loans they have taken.
Their outstanding loans will serve as a warning to them not to take any new loans,” he said.
He also advised the public to contact the counseling and Debt Management Agency (AKPK) if they have problems managing their finances.
AKPK was set up by BNM in 2006 to provide financial counseling to individuals and enable them to manage their debts and regain financial control.