PETALING JAYA: Had the Insolvency Act not been amended on Sept 20, 2020 to raise the bankruptcy threshold from RM50,000 to RM100,000, more Malaysians would have fallen into financial ruin, said Universiti Teknologi Mara (UiTM) senior economics lecturer Dr Mohamad Idham Md Razak.
He was commenting on statistics from the Insolvency Department that reported a total of 5,695 bankruptcy cases in 2022, which was a decrease from 6,554 recorded in 2021.
The bankruptcies were primarily caused by personal and business loans the individuals could not service. Also, nearly 70% (3,881) of those who were declared bankrupt had accumulated debts of between RM100,000 and RM499,000.
“Without the amendment to the Insolvency Act, the number of individuals filing for bankruptcy would have increased.
“Personal bankruptcies among working adults are mainly caused by economic factors such as the high cost of living, especially for housing and necessities, which put a strain on household budgets,” he said, adding that stagnant wages worsen the issue, making it challenging for individuals to keep up with expenses.
He said excessive borrowing, driven by easy access to credit, and inadequate financial literacy, also contributed to financial difficulties.
“Job market instability and economic downturns increase vulnerability by creating income insecurity and reducing opportunities. Unexpected expenses and a lack of social safety nets further heighten the risk of financial ruin.
“Specific debts, such as mortgages with aggressive terms and high repayments, unsecured debts such as credit cards and personal loans, and medical or education debts play pivotal roles in these cases.”
Mohamad Idham said challenges that disproportionately affect working individuals also contribute to financial distress.
As an example, he said informal employment in sectors such as construction lacks essential social security benefits and leaves workers vulnerable to economic downturns.
He added that the growing popularity of the gig economy among young adults adds income uncertainty and hinders long-term financial planning.
“Limited financial literacy, coupled with impulsive spending, worsens financial hardships. Predatory lending practices in which the lender takes advantage of the borrower, and financial exclusion, deepen the debt cycle, particularly among low-income and rural communities.”
UiTM senior economics lecturer Datin Dr Zahariah Sahudin said the effectiveness of current financial literacy programmes for working adults, shows mixed results.
On the positive side, she said such initiatives raise awareness and improve knowledge about financial planning and responsible debt management, which has helped some to improve their economic standing.
“But the challenges include limited reach, short-term impact and a lack of comprehensive data for assessment. Additionally, systemic issues like income inequality and predatory lending practices remain unaddressed.”
Zahariah added that the root causes of financial distress among working adults need to be addressed to reduce bankruptcies.
Universiti Malaya international business lecturer Prof Dr Mohd Nazari Ismail said individuals can make informed decisions about their finances only if they have a comprehensive understanding of the potential hazards associated with excessive borrowing.
“Encouraging a shift towards living within one’s means and emphasising cash transactions over loans, can contribute to a more sustainable financial lifestyle.
“This approach can curb the growth of the banking industry, alleviate the cost of living challenges and reduce overall indebtedness in society.
“Ultimately, a well-informed and financially responsible population can mitigate the root causes of financial stress and foster a more resilient economic landscape.”
