KUCHING: The Employees Provident Fund (EPF) contributors could use Account 2 as collateral for loans from banks in order to assist those facing financial difficulties, including debt, according to an economist.
Speaking to New Sarawak Tribune, I-CATS University College economist Shazali Abu Mansor said for that purpose, the government would need to discuss with the banks.
“It would be preferable for the government to direct banks to assist individuals with debt problems as the stringent regulations of certain banks are making it challenging for individuals to obtain assistance. The banks must recognise that the COVID-19 pandemic, and not the individuals themselves, is the root cause of the problem.”
“Using EPF savings as collateral could potentially assist contributors, while also providing a period for them to rebuild their finances,” he said in response to the latest policy to allow contributors to use their EPF Account 2 as collateral for personal bank loans.
Shazali, who is also its pro vice-chancellor, suggested that Bank Negara Malaysia (BNM) and the government should prioritise the welfare of borrowers, instead of solely focusing on the interests of banking institutions.
“Rules should be relaxed wherever possible, such as allowing customers who are in the Central Credit Reference Information System (CCRIS) or blacklisted to make loan structuring or flexible repayments based on their financial ability.”
He also noted that this issue is particularly prevalent among entrepreneurs.
Universiti Malaysia Sarawak (UNIMAS) economist Jerome Kueh, on the other hand, held a different view from Shazali, and said the possibility of default payment could lead to the loss of the EPF savings used as collateral for the loan.
“The use of EPF savings as collateral could indirectly raise household debt, especially if the borrower is unable to repay the loan and faces the loss of their EPF savings,” warned Kueh.
EPF Account 2 is intended to be a long-term savings tool for retirement, and allowing it to be used as collateral for loans could undermine its purpose.
“It could potentially lead to higher costs for borrowers, as they would be paying more in interest compared to what they could earn if their savings remain untouched,” Kueh stated. “It is important to consider the potential risks and benefits of the proposal carefully and explore alternative ways of providing financial assistance to those in need.”
According to him, it was crucial to establish a comprehensive framework for assessing the mechanism and implementation of the proposal.
“Clear criteria should be established to identify households in critical need of funds, and a monitoring system should be put in place to ensure loans are used for their intended purpose,” added Kueh. “Additionally, improving financial literacy among borrowers is essential to ensure responsible management of the loan and mitigate potential risks.”
During the Budget 2023 winding-up speech in Dewan Rakyat recently, Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim announced the use of EPF Account 2 as collateral for personal bank loans, stating that it would only be available to those in desperate need of funds who are forced to apply for bank loans. Earlier Anwar had reiterated that he did not support another round of EPF withdrawals.
A statement has been released by the EPF in response to the policy, indicating that a cautious approach will be taken by carefully considering all relevant factors involved to ensure a smooth implementation. How the EPF will balance the potential benefits and risks associated with using the funds as collateral for personal bank loans remains to be seen.
The EPF is a mandatory savings scheme for employees in Malaysia, with contributions from both employers and employees. It is designed to provide a financial safety net for retirees, and currently has over 14 million members.
