GoBear Bares All: Why Borrowing from a Licensed Moneylender Isn't a Bad Idea
“Don’t borrow money from Ah Long ah! Later you get into trouble leh!”
Most Malaysians have probably heard this or some variation of it - and for good reason. Borrowing money from unlicensed moneylenders can be a troublesome and potentially destructive affair, as news reports have shown us over time that the fury of unlicensed moneylenders should not be taken lightly.
But how do licensed moneylenders fit into the picture? More importantly, is it truly alright to borrow from them, and why would anyone opt to borrow from a licensed moneylender instead of from an established bank?
What are licensed moneylenders?
Firstly, a good way to begin understanding licensed moneylenders would be by acknowledging that they are a very real and notable part of Malaysia’s financial world. In fact, according to the Malaysian Licensed Moneylenders Association (MILMA), there are well over 3,000 active licensed moneylenders in Malaysia.
So, who are they? Licensed moneylenders are entities that are recognised and allowed by the law to provide moneylending services under the jurisdiction of the Moneylenders Act 1951. They are required to apply for permits to purvey their services and are subject to legal processes in the event of any discrepancies.
Some of the legal restrictions and defining traits of licensed moneylenders include:
- The prohibition of lending to those who are below 18 years of age
- The compulsory use of written forms to document moneylending agreements
- The prohibition of increasing interest rates for delayed payments
- An interest rate of up to 12% per year for a secured loan
- An interest rate of up to 18% per year for an unsecured loan
- The prohibition of the harassment, intimidation or harming of borrowers and their families
In other words, if you were to borrow money from licensed moneylenders, you would not have to worry about them showing up one day and splashing red paint all over your front door. They would also have to settle all contractual disputes or repayment conflicts that are shared with borrowers legally in court.
What about banks?
Now that we have a better idea of what licensed moneylenders do, let’s take a closer look at how they differ from banks. The Bear will also identify the various situations for you to compare if you should borrow from a licensed moneylender or a bank.
|Governance||Ministry of Housing and Local Government (KPKT)||Bank Negara Malaysia|
|Loan sum allowed||Small to medium-sized amounts; on average from RM300 to RM50,000||Large loan sums ranging from RM3,000 up to RM150,000; final sum dispensed depends on declared information
|Loan processing time||Relatively quick, due to smaller sums of money involved, some instantly
Do not require a great deal of paperwork, and usually only requests for copies of bank statements and recent utility bills
|Banks vary between same day approval to three working days in general
Some in-house approval methods can be quicker while others may require further credit checks for approval based on documents submitted
|Interest rates||Maximum of 12 % or 18% per annum for secured and unsecured loans respectively
Not allowed to compound interest charges, making their interest rates stable and immune to fluctuation, unless changes are agreed to by the borrower in the moneylending agreement
|Most banks charge interest rates between 4% to 7% per annum
Subject to fluctuations that are determined by Bank Negara Malaysia
Don’t judge a book by its cover
To conclude, licensed moneylenders do have their merits – especially if you are in need of small amount of money in a quick and hassle-free manner. Just be sure to verify their licenses and permits, and exercise your right to examine evidence of these before entering agreements with them.
If you still would like the security and reliability that comes with banks, however, feel free to approach your preferred bank and ask about personal loans.
Above all else, remember to always borrow money from reliable and credible sources that are legally approved, so as to avoid possible future complications which could hurt both your and your loved ones – not just financially.