KUALA LUMPUR (Jan 15): Pointing out that 294,000 Malaysians are involved in bankruptcy cases, the Consumers' Association of Penang (CAP) has expressed concern about the number of people driven to bankruptcy or on the brink of it.
The association is especially worried about the rising number of young Malaysians being made bankrupt.
"It is worrying that some 22,663 Malaysians under the age of 35 have been reported bankrupt from 2011 to September 2015," CAP president S.M. Mohamed Idris said in a statement. "They are supposed not to be smudged by bankruptcy particularly at this point in life when they are building their career and family."
CAP said the bankruptcy cases between 2011 and 2015 were mostly caused by people defaulting on their loans, particularly car loans (28,374 cases; 27.94%), housing loans (21,697 cases; 21.36%), personal loans (20,727 cases; 20.41%) and business loans (11,899 cases; 11.71%).
The consumer group also pointed out that the ease of online shopping, paired with the simplicity of paying with credit cards, further exacerbates the situation.
"Online shopping is a financial trap as consumers are able to make purchases easily and without the immediate feeling of upsetting their monthly budget," said Mohamed Idris. "Under such circumstances, they dig themselves deeper into a debt that they have difficulty in extricating themselves from."
There are 3.6 million credit card holders in the country with total credit card debt totalling RM36.9 billion in June 2017.
"There is little surprise that three out of five people preferred to use the credit card despite job and economic uncertainties because it allows a person to spend ahead of their earnings and the consequences can be disastrous.
"As a means to encourage such cashless trend, automated teller machine (ATM) cards have now included a debit card feature thereby exposing a person to overspending unless he manages his expenditure and balance in his account well," said Mohamed Idris.
CAP said that besides those in the bankruptcy statistics, there is also an estimated 100,000 civil servants who are at risk of going bankrupt in 2017.
"They would not be the first batch because as of May 1, 2017, about 3,000 of them had already gone bankrupt. The 100,000 who may soon turn bankrupts constitute 6.25% of the estimated 1.6 million civil servants in the country," said Mohamed Idris.
The consumer group believes that the catalyst to the dire situation is the existence of more than 20 financial institutions and cooperatives providing loans to civil servants. Repayment of the loan is by means of deducting their monthly salary.
"Although it is an easy way to safely recover the loan through automatic salary deduction, we have to acknowledge the fact that it encourages government servants to spend more than their means.
"Unfortunately, these financial institutions and cooperatives often do not cross-check the background of their applicants. Therefore, an applicant who is eligible for a RM50,000 loan could apply from four financial institutions, [and] end up borrowing a total sum of RM200,000. Some applicants even faked their salary slips to obtain loans that they are not qualified for," said Mohamed Idris.
Noting that the escalating cost of living has been cited as the main contributing factor to the struggles that civil servants face, he said they must learn to live within their means because taking loans will only worsen the situation.
CAP also pointed out that some people resort to borrowing from loan sharks to avoid being made bankrupts.
"Certainly this is not a solution as the high interest rate is going to cause the debt to mount and ah longs will use threats and violence to get their money back. When this situation happens, it is going to break up families or push people to contemplate suicide," said Mohamed Idris.