WHILE moneylending is not a new concept, online moneylending may be. A moneylender is an individual or entity that typically provides small loans at specified interest rates (which could be exorbitant) to individuals who are unable to obtain traditional bank loans.
While the local term Ah Long is commonly associated with illegal moneylenders, there are legal moneylenders licensed by the Malaysian Ministry of Housing and Local Government (KPKT).
The legal framework
The moneylending business in Malaysia is regulated by the Moneylenders Act 1951 (MLA) and defines who is a moneylender and stipulates the licensing requirements. Licensed moneylenders can only charge simple interest rates ranging from 12% to 18% per annum, depending on whether it is a secured or an unsecured loan.
The MLA, focused on regulating non-bank moneylenders, safeguards the public against unscrupulous moneylenders who may charge exorbitant interest rates or use unethical methods to recover loans. Hence, moneylenders lending with interest must be licensed under the MLA, and non-compliance may result in KPKT acting against the offending moneylender by revoking their licence, and imposing fines or even imprisonment if found guilty in court.
Before the introduction of Garis Panduan Pemberian Pinjaman Wang Dalam Talian (Kredit Komuniti) or, unofficially, Online Moneylending (Community Credit) Guidelines – the new guideline – by KPKT:
a) Section 15 of the Moneylenders (Control and Licensing) Regulations 2003 stipulated that the moneylending process required physical meetings at the moneylenders’ registered address.
The new guideline provides that moneylending agreements can now be signed online.
b) MLA licences issued before May 13 2021 did not include the provision of online loans.
The new guideline allows licensed moneylenders to apply to KPKT to provide loans online although the laws governing moneylending remain the same and apply similarly to licensed online moneylenders.
Digital moneylending business and financial inclusion
Digital moneylending products have witnessed remarkable growth in Malaysia. Examples of digital personal loan products include SLoan offered by SeaMoney Capital Malaysia Sdn Bhd (SLoan), and BigPay Later offered by AirAsia Group.
The goal of such products is to promote financial inclusion, by providing opportunities for people from all economic backgrounds with equal access to different financial products and services. Digital loans, for example, provide more accessible options to the public as, unlike traditional loans, access to online lending platforms eliminates requirements such as having a bank account, higher credit history, and stricter Know-Your-Customer process.
Some digital loans specifically target underserved communities to acquire capital, improve their short-term cashflow position and expand their businesses. SLoan, for example, offers eligible sellers a loan facility of up to RM120,000 with interest rates of up to 18% per annum, to provide financial assistance when they grow their business.
There are, of course, two sides to every coin. Although digital moneylending platforms can promote financial inclusion, their proliferation raises concern about non-performing loans, as borrowers can easily access such lending and be exposed to risks like making uninformed decisions and overborrowing. This can result in borrowers taking on more debt than they can afford, and coping with penalties and negative impacts on their credit scores.
Borrowers should be cautious and consider their personal needs and means, and their ability to service and repay such loan before applying.
Conclusion
The rise of e-money and e-commerce highlights that greater caution and regulation is needed, especially for online lending. Despite the exponential growth in online trading, moneylending, digital finance offerings and commerce, the legal framework has not kept pace, and there is a need to close existing regulatory gaps to address the specific challenges posed by digital moneylending services and products.
Lenders and borrowers should obtain independent legal advice when involved in digital moneylending transactions, to ensure compliance with the licensing requirements under the MLA, the new guideline, and related regulations, as non-compliance can attract legal penalties. Borrowers must focus on learning about the lender’s credibility and understanding the terms and conditions of the loan arrangement before proceeding.
This article is contributed by Lai Yong Ze of Christopher & Lee Ong.
