Credit cards, personal loans landing Malaysians in debt trap

Statistics show over 95,000 individuals have been declared bankrupt between 2014 and 2018

by AZREEN HANI / pic by HUSSEIN SHAHARUDDIN

UNCONTROLLED credit card usage and excessive personal loan borrowings dragged thousands of Malaysians, many of whom are married, into bankruptcy and are adding financial strain to families.

Statistics from the Malaysian Department of Insolvency showed over 95,000 individuals have been declared bankrupt between 2014 and 2018 after failing to honour their borrowings with lenders.

The figures showed the main causes that dragged them into the insolvency were personal loans (27.76%), hire purchase (24.73%), housing loans (14.09%) and credit card (9.91%).

Credit Counselling and Debt Management Agency (AKPK), the agency which mediates the resolutions for individual debt management, said credit card loan accounts for 55% of its total debt portfolio, while personal loan makes up 33% of the total value.

Since it was established 13 years ago, the agency under Bank Negara Malaysia (BNM) is restructuring unpaid debts valued at RM35.2 billion.

According to AKPK, 943,181 individuals have volunteered for AKPK’s assistance and counselling services, and from that figure, 281,073 participants have participated in the Debt Management Programme (DMP), a programme designed to assist loan defaulters to clear their loans.

The AKPK figures also showed 210,746 participants or 78.1%, who enrolled into the DMP, are married and 111,093 or 41.2% are between the age of 30 and 40.

AKPK’s study also revealed that 38% from DMP participants cited poor financial planning and 31% said cost of living dragged them into financial conundrum.

AKPK GM for the operations division, Nor Fazleen Zakaria (picture), said there is an urgent need to address the financial literacy shortcomings among Malaysians as it has been cited as one of the main causes for the rise in loan defaults.

“The demographics of our participants alone are quite telling. Basically, if you are married and are at the age of starting a family, without proper financial planning, you may find yourself in a financial problem,” Nor Fazleen told The Malaysian Reserve.

She said it is vital for the country to improve financial literacy among the citizens.

“Our survey shows that most Malaysians have the knowledge, but the literacy or skills and education are areas that we can improve on,” she said.

The DMP, which allows AKPK to mediate with lenders on behalf of borrowers, has helped 22,402 debt cases be resolved with total outstanding debt of RM939.1 million, she added.

AKPK helps borrowers reschedule or restructure their borrowings, subsequently reducing the loan default level.

Household debt has been worrying, but has seen a reduction as the central bank seeks to prevent a financial meltdown in the event of economic fallout, like the 2007/2008 East Asian financial crisis

The household debt-to-GDP ratio has dropped to 82.1% of the country’s nominal GDP in December 2018 compared to an all-time high of 86.9 % in December 2015, according to official figures. Household debt stood at RM1.18 trillion in 2018.

The National Strategy for financial literacy launched by Prime Minister Tun Dr Mahathir Mohamad last month outlines five main plans to equip Malaysians with the knowledge to make informed financial decisions and nurture healthy attitudes in financial management.

AKPK is one of the founding members in the Financial Education Network, together with the Ministry of Education, Malaysia Deposit Insurance Corp, Employees Provident Fund (EPF) and Permodalan Nasional Bhd.

“Enhancing financial literacy of Malaysians is important. With the strategy, it provides a framework, and the strategy was crafted for young people, so we can inculcate good financial behaviour since the early age up until retirement,” Nor Fazleen said.

The four-year plan aims to nurture values at a young age, increase access to financial management information, tools and resources, inculcate positive behaviour among targeted groups, boost long-term financial and retirement planning, and also build and safeguard the wealth of Malaysians.

“Knowledge is quite high among Malaysians, but when it comes with behaviour, ie whether I behave in that manner, financially, it’s another story,” she said. According to BNM’s statistics, 50% of EPF members above 55 years old have exhausted their savings within five years.

“The figure is alarming considering that the average lifespan of Malaysians is about 78. That is why the strategy outlines the need to boost long-term financial and retirement planning,” she said.

“We need more Malaysians to be proactive with their finances, to be aware of challenges such as scams, and to prepare for rainy days ahead. Most importantly, they need to seek help before it is too late. We are ready to assist without any charge,” she added.