M40 needs loan moratorium the most

The M40 have to bear more ‘structural living costs’ such as housing loans, car loans, business operations and education, says MFPC


TARGETED loan moratorium assistance for individuals in the Middle 40% (M40) and Top 20% (T20) income groups will be of a significant help, mainly those in the M40 who are heavily impacted by the pandemic as they tend to have more loans to pay off.

On the financial assistance required by the three different income groups in the country, the Malaysian Financial Planning Council (MFPC) immediate past president Michael Kok told The Malaysian Reserve that the M40 have to bear more “structural living costs” such as housing loans, car loans, business operations and education.

The Bottom 40% (B40) income group is reliant on help for basic needs, essentially food and daily living costs such as rents.

As for the T20, their need for immediate financial assistance is limited. Therefore, they are more likely to be relied on to provide taxes or to indirectly subsidise the B40 and M40 individuals, said Kok.

“The M40 are the largest proportion of users of house loans, car loans, deposits and personal finances. Therefore, financial assistance to this group could be more essential than others.

“The M40 are reliant on banks for necessary spending, business spending and discretionary spending, unlike the B40 who rely on banks mainly for necessary spending,” he said.

By providing further assistance to the M40, it will also have a positive spillover effect onto the country’s economic recovery amid the pandemic, said Kok.

As the M40 group makes a large portion of the small and medium enterprises (SMEs) in the country, targeted assistance to this group will help them retain their workforce, hence improve the nation’s economy because 98.5% of the business establishments in the country are made up of SMEs.

“A survey by the SME Association of Malaysia in August which covered 1,713 members revealed that 20% of SMEs were considering to permanently shutter their business in the next six months.

“This group has been the main victim during the Movement Control Order, while larger companies owned by T20 are better able to survive through the economic downturns,” he said.

The M40 also risk falling into the B40 income group if they do not receive the financial assistance required, which would adversely impact the economy.

“As business and employment income suffer during the Covid-19 crisis, the M40 will be squeezed on both sides: As income falls, they will need to look at reducing all costs. This creates a cycle of economic depression.

“This means that the M40 would need the most help in housing costs, transport costs and business costs, or risk falling back into the B40 group (reverse growth),” he said.

As for the T20, Kok said they make up a “disproportionately” larger proportion of wealth, taxes and use of banking loans.

He opined that a reduction in personal income tax for the year will also greatly help individuals in the M40 and T20 groups.

According to data from the Credit Counselling and Debt Management Agency (AKPK) as of September this year, the cumulative number of counselling applicants had reached 1.12 million since 2006.

Of the total cumulative figure, 330,788 of them were Debt Management Programme (DMP) applicants.

Since the beginning of this year, AKPK has seen 91,379 applications for counselling and 23,317 of them enrolled into DMP.

The main reason people applied for the DMP is due to poor financial planning (36.6%) followed by high cost of living (34.9%), failure or slowdown in business (12.3%), retrenchment or loss of breadwinner, high medical expenses (5.9%) and others (1.4%).

In terms of age, 41.4% of them were made up of those between 30 and 39 years old. This was followed by the age group of 40 to 49 years old (28.5%), 20 to 29 years old (13.7%) 50 to 59 years old (13%) and those aged 60 and above (3.4%).

Under the national budget for 2021, the government announced that income tax for resident individuals will be reduced by one percentage point for the chargeable income band of RM50,001 to RM70,000, estimated to benefit 1.4 million taxpayers.

Banks will enhance the Targeted Loan Repayment Assistance to B40 borrowers who are Bantuan Sara Hidup recipients or Bantuan Prihatin Rakyat, and to micro enterprises with loans of up to RM150,000.

It also said the government is proposing the facility to withdraw retirement savings from Account 1 on a targeted basis.