ECONOMISTS express disdain over Prime Minister Anwar Ibrahim’s proposal to introduce a scheme that allows Employees Provident Fund (EPF) contributors to apply for bank loans by using their retirement fund as collateral.

They told The Malaysian Insight contributors should not be burdened with another form of loan, adding that Putrajaya must come up with an alternative that does not involve usury.

Anwar, however, said this facility would only be for those who need money desperately.

“In principle, I do not agree with allowing special withdrawals from the people’s retirement fund,” he said when winding up the debate on Supply Bill 2023 in the Dewan Rakyat.

“However, I will ensure that EPF gives space to hard-pressed contributors with savings to borrow from banks, by using their EPF money as collateral.”

Anwar said this is the best way to help contributors in the present circumstances as many countries that had allowed such withdrawals from retirement funds had cancelled such facilities.

Debt will increase if banks give out loans

Dr Ahmed Razman Abdul Latiff of Putra Business School disagreed with Anwar’s suggestion, saying the move will only increase debt.

He stressed that Anwar should instead introduce a non-usury loan scheme to help those in need.

“I don’t agree that the solution to the people’s problems is to ask them to continue to take on loans and increase debt, and allowing EPF contributions to be used as collateral.”

“This is because it will increase the burden of household debt which is already close to 90% of the GDP and among the highest in Southeast Asia. In addition, it requires an amendment to the EPF Act that does not allow contributions to be used as collateral.

“EPF will also be unable to use contributions for investment purposes and this will affect the EPF’s investment strategy.

“I hope that the people will be helped through alternative financing that does not involve usury,“ said the academic.

Dr Barjoyai Bardai of Universiti Tun Abdul Razak, however, said, although EPF act does not allow savings to be used as collateral, the matter can be amended as previous governments have allowed special EPF withdrawals.

“Those withdrawals were  also not allowed under the EPF Act so amending it wouldn’t be a big issue,” Barjoyai said.

He, however, suggested that the government allow EPF to issue the loan instead of contributors going to banks.

“EPF has the ability to provide the loan. They can issue the loan with a low interest rate of two to three percent per annum.

“Let say the dividend for EPF is five to six percent, minus the interest rate, contributors still have a two percent margin on their savings.”

“If they take a bank loan, the rate is at eight percent a year. Minus the dividend, they still have a three percent interest rate to pay.

“Plus, EPF has all the information they need from a contributor while banks don’t. It is better for EPF to provide the loan instead of banks,” he said.

Bank employees’ union against proposal 

A bank workers’ union has criticised the government’s proposed scheme.

The Sarawak Bank Employees’ Union said the government’s proposal was “ill-conceived,”pointing out that contributors’ savings were safeguarded from bankruptcy proceedings under the EPF Act.

“What happens if the borrowers default on their loans? Would banks agree to give loans on such collateral?” the union’s CEO, Andrew Lo, said in a statement.

“Secondly, banks are going to charge a higher interest rate than EPF dividends, so contributors will see their overall financial position worsen further.”

Lo said the proposal would lead to an increase in the already “alarming” level of debt among Malaysians.

EPF had said that it would assess the proposed scheme and will consider all the relevant factors before its implementation. – March 11, 2023.