Get Tough On Personal Loans & Property Loans ... PLUS Revamp Insolvency Laws Please

Bank Negara Malaysia’s (BNM) move last Friday to tighten consumer lending will be negative for loan growth but the impact will not be significant, CIMB said, as it urged investors to hold on to their holdings in banks. The three measures the central bank announced were 1) a maximum tenure of 10 years for personal loans, 2) a maximum tenure of 35 years for property loans, and 3) a ban on pre-approved personal financing products.

In a kind of related newsbite, Nancy Shukri has indicated that changes will be made soon to Insolvency laws, a promise made by Najib back in 2012. Its about time to change these laws as it is not befitting of a developing economy like ours.

While I strongly agree that our personal and property debt should be reined in further, ... we also need to know that there is a highly inequitable treatment of those who fall under bankruptcy in the Malaysian system.



I have written before on the dire need to revamp Malaysia's archaic bankruptcy laws. Let's look at hard facts:

a) Inland Revenue Board CEO Dr Mohd Shukor Mahfar is 'embarrassed' to explain clearer the issue of why five million people in the country who are eligible to pay taxes but only 1.7 million are active taxpayers.

b) As of October 2011, there were 235,908 (probably closer to 300,000 now) individuals who were still declared bankrupt, according to Insolvency Department's Datuk Abdul Karim Abdul Jalil. On average 51 new ones are added everyday.

Take the two together, this is to say that nearly 5% of those working are bankrupts. Yes, I know some are not working. So we are still looking at 1 in 20 of our workforce.


The trouble with our system is that bankruptcy runs in perpetuity (i.e. almost never ending till you die). Unlike in HK, Singapore and many forward thinking economies where you only have 4 or 5 years to pay down your debt and after that you are free from the debts.


Why is it so important to implement a limited period for bankruptcy?


1) Being bankrupt means you are also literally removing 5% of the working public and 5% of households from participating in the real economy. Cannot do business, cannot get loans, even job hunting may be a problem every now and then.


2) The Malaysian archaic system overly favours the banks and financial lending institutions. When its in perpetuity, the banks can clamp down on you for the rest of your life. We have to make banks and other lenders also responsible for their part in giving out the loans. Look, even creditors to EU give haircut once Greece is in trouble. That is why banks in Malaysia can be so bloody aggressive with credit cards, they know they have a very long recourse to make your life a living hell.


3) The 250,000 figure will jump exponentially soon. Why? Just look at the way they are dishing out the study loans under PTPTN. Look at the surge in personal loans by non bank institutions, look at the aggressive credit card schemes. When you give out RM30,000 or RM40,000 or RM50,000 to someone and their job is only likely to pay them RM2,000 when they graduate, if they graduate, and if they can find a job then, ... you are going to have huge problems. Plus, we haven't got to the credit card users yet.



4) Even fuckers who end up in jail for a few years and come out, they are free ... not if you are a bankrupt, man, they will drag you till you go to your grave.


5) The onus needs to shift back to the banks and other institutional lenders for a more balanced and equitable solution. For far too long have the banks been operating giddily under such a protective umbrella in their favour. There has to be a fairer distribution of risk for lending and borrowing. I am not suggesting that debtors need not pay, I am saying you need to give them a limited timeline.


6) When you take out 5% of the household from the real economy in perpetuity, it has a lot of indirect repercussions: cannot get study loans for children, making it very difficult to reverse their position as their job prospects may be affected as some companies frown on their status, etc. Needless to say, these 5% will also NOT play a part in the real economy in an effective manner - talk about dropping an anchor on the economy, it weighs heavily especially if its in perpetuity.


7) We have NO UNEMPLOYMENT INSURANCE or other similar SAFETY NETS. If our economy tanks, or the industry we are in tanks, and we are suddenly out of a job ... it becomes very easy for us to spiral swiftly to bankruptcy if you have car loans, housing loans, etc... and no job.


8) Our current laws stifle entrepreneurship. When they try to start businesses, they usually have to take loans, sometimes they will fail, you do not want to punish a risk taker too much by literally barring him/her from ever being an entrepreneur again. We all know that to have a vibrant economy, we need more risk takers, not shut them down the moment they fail. Many successful entrepreneurs will tell you they needed to fail a few times before striking it.


9) It is also precisely these laws that causes many to go for the "ah longs" to make ends meet. No one will resort to these avenues if we have a saner approach to this mess.


10) In HK its automatic discharge after 4 years, in Singapore its 5 years. There are just as many genuine cases as there are people who deliberately do not pay there as in Malaysia. Taking away 5% of the working population from participating in the real economy is a travesty - it has enormous multiplier effects, each person probably affects the livelihood of around 4-8 other younger and older people dependent on that person for financial well being. 

And this is the most important reason of all, we need a KINDER, GENTLER society and government, that embraces all and not excessively punishes some.





p/s I know there will be many who will harp on bigwigs and connected individuals amassing huge loans from government linked banks and government linked financial institutions, and not paying back. That is a separate issue altogether, and should NOT be lumped into what I have written above. Heck, most of these connected people do NOT EVEN EVER get slapped with a bankruptcy notice, so they really do not count - theirs is a matter of poor government governance, lack of accountability, poor or no enforcement, running circles around regulations, the lack of political will to enforce or do the right thing, no checks and balances. So these are TWO related BUT almost entirely separate issues.

How China Conquers The World

Many things have been said about how China is going to dominate the global economy for the next 50 years. This in a nutshell, is how they go about laying the groundwork. China already is a player in the commodities side of things, they are laying the groundwork for the rest of the jigsaw puzzle.

The first question to entertain is why are they keeping the yuan low while they keep registering tons of surpluses. This is key to buying up the world. Some may say that although they have surpluses, a lot of that are in US Treasuries. If USD falls, they stand to lose a lot. That is B.S. ... I think even a second year economics student at Beijing University would be able to see through that.

Although China has a lot of Treasuries, their buying has decelerated substantially. Some think that they cannot ever dump the Treasuries - yes they do not dump, they cannot even afford to dump as the derailment of the global economy can have massive ramifications.

Instead, they basically recycle the surpluses by lending or pumping funds into state-controlled firms, buying up anything and everything related to commodities and even ports related entities to ensure the logistics chain are under their control. That being the case, many have been wondering if the Chinese have been over paying, yes they have been and they know it, but they rather have it than to see their surpluses dwindling 20% every 2 years in value.

Next, is to make their big companies become global players. China Development Bank, which is not really a commercial bank but a sovereign entity, issues bonds and lends aggressively to help China companies to frog leap the rest. The prime example had been the phenomenal growth of ZTE and Huawei, ask any telco vendor person, they were also-rans 5 years ago. Now they are the top few in the world.

Back in 2004, CDB provided a $45 billion line of credit to Huawei and ZTE. Yes, $45 billion of vendor financing. This basically meant that if you were Singtel and Huawei tries to sell you their products, if you were mildly interested but may lack the necessary funding/budget this year ... Huawei will say no problem, 100% financing can be provided at attractive rates. These type of export financing schemes are done all the time by the more enterprising governments, but certainly not in the scale of China. Naturally the other global players are crying that these are unfair advantages.

Next, is cementing the global economic and political ties. You cannot be just owing and running businesses, you need to be needed as a major player all corners of the world. China owns Asia already, but they have gone out of their way to go big into Africa and South America, investing big bucks, cementing political ties, granting loads of loans to various governments. Plus increase trade with them, China needs everything anyways .... What a friend.

Unlike the US or EU, China does not (yet) have a political agenda in doing all these, they are not aiming to protect the sanctity of the democratic world or pushing some political ideaology, which makes them easy to befriend the usual enemies of the Americans. China couldn't care less about the atrocities or dictatorships in other countries - you don't criticise my ways, I don't criticise yours ... (unless they get really really bad ... I guess.

Even now, China is making inroads into the troubled Greece, and possibly soon to Portugal and Spain, buy assuring them that China will buy their bonds.

It does not take a smartass to note that gradually China will own probably the top few players in every significant industry in the world. They tried doing that with banking and failed miserably, the timing was off and they made huge losses, but they can afford to make these kind of losses anyway.

So, you can shake your heads, but we all will have to work with them, one way or another, cause soon we all will be working for them, one way or another