Review of the Moneylenders (Amendment ) Act 2011
And Its Economic Efficiency To The Debt Market
RUZIAN MARKOM, ABDUL GHAFAR ISMAIL, SHAHIDA SHAHIMI,
AMINURASYED MAHPOP & NURUL ASYKIN MAHMOOD
FAKULTI UNDANG-UNDANG, UNIVERSITI KEBANGSAAN MALAYSIA
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Contents
1. Background of Research
2. Statement of Problem
3. Objectives of Research
4. Methodology of Research
5. Significance of Research
6. Research Findings
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Background of Research
•Historical Development of Moneylending Industries
in Malaysia
•The Legal Development of Moneylenders Laws in
Malaysia
•The Current Moneylending Activities in the Debt
Market: Regulated and unregulated
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Historical Development of Moneylending
in Malaysia
The business of moneylending is the oldest credit institution in Malaysia.
It began in the 19th Century where the Malay States as attraction place for living of the
immigrants from India and China. (Lal Harcharan Singh, 2003).
During the British era, the Indian Community has played important role in economic
development of the Malay States in rubber tapping and mining. At the end of the 19th century
and early middle of the 20th century, the Chettiar were the sole lender to the Chinese farmer to
grow paddy, small rubber tapper, governmet servant and Malays aristocrats. (Kratoska, 2013).
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Historical Development of Moneylenders
Law
Moneylending issues is a serious phenomenon to the Government f Malaysia.
Therefore, rigorous effort was made by the laws to curb the problems in many forms.
In the early years, every state has its own laws eg Perlis Enactment No.12 of 133, Straits
Settlement Chapter 218.
The legacy began in 1919 with the Usurious Loan Enactment with the purpose of curbing high
interest rate moneylending.
Then, the British enacted Moneylenders Ordinance 1951 to regulate the licensing and to control
the interest in moneylending transaction.
Since its enactment in 1951, the Act has gone through 15 amendments and the latest was in
2011 which extended the jurisdiction of the MLA to Sabah and Sarawak and the Federal Territory
of Labuan and sec 29AA which prohibits assisting of unlicensed moneylenders.
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The current moneylending activities in
debt market
Regulated – financial institutions governed by Bank Negara Malaysia like commercial banks,
Islamic banks , SME banks; cooperatives under the KPDNKK; moneylenders and pawnbrokersKPKT
Unregulated- unlicensed moneylenders, ar rahnu.
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Statement of Problem
Moneylenders Act (Amendment) 2011
Regulator- Bahagian Pemberi Pinjam Wang dan pemegang Pajak Gadai,
Kementerian Kesejahteraan Bandar,Perumahan dan Kerajaan Tempatan.
Debt market
Debt market
Illegal moneylenders
Illegal moneylenders
Licensed Moneylender
Moneylenders Agreement
Collateral & non-collateral
Borrowers
Efficiency of
Debt Market
Interest Rate
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Enforcement
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Research Objectives
1.
To explain the function of the Moneylenders (Amendment ) Act 2011 as a social tool in
enhancing the economy of the society;
2.
To review the Moneylenders (Amendment ) Act 2011 based on the efficiency of debt
market; and
3.
To propose amendments to the Moneylenders (Amendment) Act 2011.
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Research Methodology
This is a qualitative doctrinal research which primarily focuses on the Moneylenders (Amendment) Act 2011 as a social
tool in enhancing the economy of the society.
This study adopted economic analysis of law approach.
The research adopted the Behavioural Claim method which seen “efficient” based on the notion of individuals respond
to legal rules economically .(Kornhauser, 1985)
In the methodology, the policy and political economy are analysed.
 The policy analysis focuses on analysis of the effects of legal rules and institutions on outcomes. An outcome usually
consists of the objective effects of the rule or institution on the behaviour of private individual. In this research it refers
to the effect of the Act and the governing institutions to the borrowers.
In contrast, political economy investigates the operation of political institutions such as courts, legislatures, the
executive and administrative agencies; it usually focuses on the behaviour of the public officials within the institutions.
This involves the interviews and discussions with the public officials from the Ministry of Urban Wellbeing , Housing and
Local Government, Commercial Crime Investigation Department, Polis DiRaja Malaysia and Malaysian Institutions of
Licensed Moneylenders Association (MiLMA)
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Contd…
In analysing the relation between the Moneylenders Act and the efficiency of the debt market, the study
has conducted structured interview with officials from Moneylenders and Pawnbrokers Department,
Ministry of Urban Wellbeing, Housing and Local Government; Commercial Crime Investigation Department,
Polis DiRaja Malaysia and Malaysian Institutions of Licensed Moneylenders Association (MiLMA).
Roundtable Discussion on the research was conducted on the 28th of April 2014. The objective of the
discussion was to get feedbacks from the stakeholders on the research outcome. It was attended by
Inspektor Noor Azizul Rahim Taharim from Moneylenders and Pawnbrokers Department, Ministry of Urban
Wellbeing, Housing and Local Government; SAC Wong Wai Loong, Superintenden Lim Chuan Hoo and
Inspektor Hafizah Raduan from Commercial Crime Investigation Department, Polis DiRaja Malaysia; Mr
Muhammad Kamil Ainul Maslih from Utusan Malaysia and Mr RC Veeraseelan from Malaysian Institutions
of Licensed Moneylenders Association (MILMA).
Finally, on the 9th of May 2014, Focus Group Meeting was conducted with the members of MiLMA.
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SIGNIFICANCE OF RESEARCH
i.
Individual/Borrower
This research will helps individual in understanding the difference between the licensed and
unlicensed moneylenders. Individual and the society should be given more information on the
benefits of doing transaction with licensed moneylenders as well as the risk and danger dealings
with unlicensed moneylenders. Besides, an individual /borrower must be a responsible
borrower by being a prudent paymaster to avoid unnecessary action by the moneylenders.
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Contd…
ii.
Industry via the Malaysian Licensed Moneylenders Institutions (MiLMA)
This research will hopefully enhance the role of MILMA as representatives of the licensed
moneylenders in Malaysia. They should be given status quo in any meetings and discussion of
the government in the process of amending new laws and policies relating to moneylending.
Their views should be considered and implemented by the Parliament in ensuring efficiency in
the debt market. The Government should provide funds for their activities to be recognized in
the society at large.
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Contd…
iii.
Government Authorities
This research is hopefully will assist the Government Authorities in reviewing the current debt
market in Malaysia. In general the regulation of debt market concentrate on the financial
institutions including Islamic banks, commercial banks, development banks, takaful and
insurance which are governed by the Central Bank of Malaysia. In the alternative, there are
another type of debt market which focus on micro lending like the licensed moneylenders,
pawnbrokers, cooperatives, unlicensed money lenders, hire purchase, leasing, factoring,
microfinance by Amanah Ikhtiar Malaysia, TEKUN. These types of financial services are governed
by the Ministry of Urban Wellbeing, Housing and Local Government, Ministry of Cooperatives
and Consumerism and other relevant authorities. It is prime time for the government to have
alternative legal framework this kind of micro lending under the proper financial services
authority.
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RESEARCH FINDINGS:
A. The Moneylenders (Amendment) Act 2011 as A Social Tool in Enhancing
The Economy of The Society.
The Different Modus Operandi Between The Licensed and Unlicensed Moneylenders
No.
Licensed Moneylender
Unlicensed Moneylender
1
Business conducted with the license obtained from the
Moneylenders and Pawnbrokers Department, Ministry of
Urban Wellbeing, Housing and Local Government
Business without license
2
Moneylending transaction conducted at the premise stated
in the license.
Moneylending transaction
conducted anywhere
3
Interest rate are controlled and reasonable according to the
Act :
Collateral loan: 12 % per annum
Non Collateral loan: 18 % per annum
No controlled rate.
The interest rate is oppressive
and unreasonable.
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4
Standard Form Agreement according to Schedule J for noncollateral loan and Schedule K for collateral loan. The
agreement protect both parties in the event of default and
court case
No standard form contract. Just
sign a blank piece of paper.
5
Valid stamped set of agreement given to the borrower
No standard from contract
6
The borrower will be informed on the total amount of loan
given and the monthly instalment that he needs to pay to the
lender.
The Borrower will receive lesser
amount than the total loan
amount.
7
In the event of default, the borrower will be imposed payment In the event of default, the
according to the court order.
borrower and his family will be
harassed and threatened until the
payment is made
Source : Moneylenders and Pawnbrokers Department, Ministry of Urban Wellbeing, Housing and Local
Government (2014)
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Contd..
Cycle Pattern of Efficient Debt Market and Economic Behaviour
Financial Loan
Surplus Unit
FIRM
(Moneylender
Company)
Act
Act
GOVERNMENT
(Ministry)
Defisit Unit
HOUSEHOLD
(Borrower)
Loan principle + Interest
Source : Modified from Microeconomic (2006)
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Contd…
The diagram illustrates that the Government as the regulator and enforcer of the laws for the
needs of the firm and household. Firm in this context refers to the moneylender which represent
surplus. As a surplus unit, the firm supply loan to the household that is the borrower which
represent deficit. In return of the loan, the household need to pay back the loan together with
the stipulated interest. Efficiency will be achieved when there is a balance between need and
supply. Efficiency is one of the normative criteria in economic law analysis. Nevertheless, there is
no uniform decision on what construed as efficient law in economics.
In relation to the research, the Act is comprehensive law that plays the role of social tool in
encouraging efficient economy. The Act serves the function of law to rectify the market
situation. Thus, the concept of efficiency relates to the ability of the amended Act in regulating
the debt market need and supply in fair and balance environment. Finally, the Act increase the
social benefit and conform to the concept of utilitarianism which emphasize on morally right
laws brings peace and harmony in the society.
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Findings of Research :
B. Review of the Moneylenders (Amendment )
Act 2011
A. Interest rate not economical
The findings of the discussion with the moneylenders revealed that
lending rates are fixed at 12 per cent for secured loans and 18
percent for unsecured loans is not economical. To achieve economic
efficiency in the market the optimal interest rate should be
determined by demand and supply in the market. This can be
referred to on lending practices in Singapore, Thailand and Hong
Kong. The direct impact is the request for loan from unlicensed
moneylenders will be reduced.
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Contd…
B. The Application Process
In addition, the application process should be simplified and approvals for loans of RM3 , 000
and below. Deregulation of the loan application process by simply signing a deal without having
to turn off defaulting other processes such as stamping and so on . This flexibility saves cost and
ease of doing them. Section 16 of the Act should be reviewed. In practical, it is difficult for the
moneylenders to duly stamped the document and hand in to the borrowers before releasing the
loan. For instance, a moneylender stays in Bagan Serai , he needs to go to Permatang Pauh to
sign the document and they also depends on the runner who came once a week. By that time,
the borrower will opt for unlicensed moneylender because they urgently need the cash. It is
suggested that the legal provision should revert back to the old practice of promissory note be
given to the borrower in the alternative of the agreement.
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Contd…
C. Licensing Requirement
It is suggested that the licensing requirement should include attendance of Moneylenders
Course.
The Moneylenders Course will equipped the moneylender with legal, basic account and ethics
on business of moneylending.
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Contd…
Statistics of Cases Relating to
Unlicensed Moneylenders
Source: Commercial Crime
Investigation Department, Polis
DiRaja Malaysia (2014)
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Year
Total Open Cases
Case of Inquiry
Arrest Case
2005
50
7
10
2006
62
11
5
2007
162
23
12
2008
270
66
15
2009
483
276
35
2010
279
217
23
2011
261
179
51
2012
445
271
206
2013
442
378
199
2014
147
49
98
JUMLAH
2601
1477
654
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Contd..
The cases of unlicensed moneylending were entrusted to the Commercial Crime Investigation
Department in 2005. The department is only involved with unlicensed moneylenders. The
results have been an increase in unlicensed moneylenders in 2005 until 2009. The numbers was
highly increased in 2009 due to the massive campaign and Ops Jerung. This awareness
encourages the public to make reports. Previously they did not dare to come to make a
complaint for fear of interference from an unlicensed moneylender. The campaign resulted in an
unlicensed moneylender, reduced their activities. Then, the cases decline until 2011.
Investigation Reports showed that the unlicensed moneylenders activate again in 2012 even
though the amendment was enacted in 2011. This is due to current economic factors such as
rising oil prices and reduced price subsidies which affected the income of households.
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Conclusions and Recommendations:
a.
Relocating the jurisdiction of Ministry responsible for dealing with moneylending – Ministry of Urban Wellbeing , Housing and
Local Government or new Director General for Consumer Credit under the Ministry of Finance
b.
Include the provision for unlicensed moneylenders in the Act
c.
Review the Interest rate imposed to the borrowers
d.
The Application Process must easy, fast and efficient
e.
Imposed Prudent and Responsible lending – moneylenders be given accessed to CCRISC in cooperation with the bank
f.
Increase the number of enforcement staffs concerned
g.
Aspects of the borrower : practical place for repayment
h.
Enhancement of the Moneylending Industry by recognizing the Moneylenders Institutions Associations in any decision and
policy making relating to moneylending activities
i.
Establishment of Credit Advisor Bureau to assist the vulnerable borrower.
j.
Positive Perception of the Moneylenders to the Public by rename as consumer credit.
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Thank you
WASSALAM
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