This article first appeared in The Edge Malaysia Weekly on April 25, 2022 - May 1, 2022

We have read lots of stories about urbanites living below the poverty line and how they cope with the stress of fulfilling basic daily needs.

And as at April 14, the 5.3 million applications received by the Employees Provident Fund (EPF), representing 44% of 11.95 million members who are eligible to withdraw monies under the latest special withdrawal facility, underscores the hardship faced by many, even though it has been more than two years since the Covid-19 outbreak.

Surprisingly, it hasn’t only been the low-income group that has been hit. The breakdown of applications for the special withdrawal were as follows: 59% of the M40 group; 55% of the B40 group; and 39% of the T20 group.

The introduction of Touch ’n Go Group’s digital personal loan facility called GOpinjam may be timely, as it looks to target the underserved and lower-income market segment by offering personal loans from as little as RM100 to a maximum of RM10,000. The target is to disburse up to 

RM300 million this year, with a flexible repayment period of between one week and 12 months.

The high interest rate, which could go up to 36%, is definitely the key consideration, as nobody wants to be burdened by more debt — though GOpinjam says the interest charged may be only 8%, depending on the amount, tenure and creditworthiness of the borrower.

Even so, the rate is not that affordable compared with rates offered by financial institutions of generally below 10%. The interest rate charged on credit card cash advances is, however, competitively priced at 3% to 5%.

While GOpinjam may provide temporary financial respite, as it offers an alternative to unauthorised moneylenders who invariably extract their pound of flesh and even more, borrowers may end up shouldering more debt.

If GOpinjam really wants to help low-income earners, it should consider tweaking its interest rates to more reasonable and affordable levels.

Although the loan moratorium offered by banks to tide cash-strapped borrowers over during the lockdowns may have eased burdens, the lifetime loan commitment increases due to higher total interest incurred and the extended housing loan duration. It will take years before one can reduce the principal payment of a loan substantially, and that is why borrowers eventually end up paying double the amount borrowed.

When more people accept personal loans that come with high interest rates, a longer period of time will be needed to achieve financial freedom. At the same time, the nation’s household indebtedness continues to remain at worryingly elevated levels — 89% of gross domestic product as at end-December 2021 against 89.6% in June 2021.

With the ability to charge interest on any financial product, financial institutions have the upper hand regardless of any economic situation. In the spirit of giving back to society, would it be too much to ask whether they can undertake some form of corporate social responsibility programme that offers better financing options to help the financially distressed?

If this is not doable, perhaps the Touch ’n Go Group could enhance returns from its GO+ e-wallet feature that offers a daily return rate of about 1.58% with a minimum reload of RM10. It is a better option for the people to generate extra returns from their deposit. The underlying fund for GO+ is Principal e-Cash Fund, which invests in short-term bank deposits and focuses on investments that are of short duration and/or high quality.

Unless you really need to, think twice before borrowing, as it will escalate your debt commitment instead of helping you accumulate wealth.

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