EPF as collateral? Is this really relevant?
EPF should lead this initiative without interventions of the banks. EPF should just loan out the money with no interest and track the repayment and act as a bank for their member just like a “koperasi” would do.
By Sharifah Azzahra, Certified Risk Advisory, Selangor
It came to my attention when the Prime Minister announced his EPF policy alternatives as compared to the one off withdrawal as practise before.
The initiative:
“I welcome different opinions; I do not agree in principle with a special withdrawal of the people’s retirement savings. [But] I will ensure EPF allows contributors who have money yet facing financial difficulties to borrow from banks by using their EPF savings as collateral or guarantee,” The Prime Minister/Minister of Finance told the Dewan Rakyat on Thursday (March 9).
EPF:
Before we proceed, it is important to understand the vision and mission of EPF
1. Helping members achieve a better future
2. Safeguard members' savings and deliver excellent services
The argument
First keep in mind that Collateral is an “item of value that a lender can seize from a borrower if he or she fails to repay a loan according to the agreed terms”.
Given the target market for this initiatives are people who are facing financial difficulties, how does imposing loan and encouraging them to have more debts is reasonable. The financial problem that we have today is basically a damage of having too much debt. Hence moratorium was introduced during pandemic to ease the repayment burden. Historically we have seen how much the public have to suffer as a result of the loan and debt that they are experiencing.
Putting their wealth that they saved for their old retirement life to a bank will only benefit the bank. When will it be possible for them to enjoy their money if that has been booked by the bank for another maybe 10 to 20 years ahead.
How does this move explain the vision and mission of EPF to “Safeguard members' savings and deliver excellent services”.
Mr Prime Minister, Islam has never encouraged debt unless it is “qard al Hassan” especially to people who are struggling and having financial problem.
Questions:
1. Worst case if they are not able to pay back the monthly payment, banks will seize the collateral or it will be a guaranteed by the Government?
2. Will this loan be interest fee?
3. What will happen to the collateral if there will be another economic shock?
Recommendations
1. It is important for MoF in collaborations with EPF to study the debt capacity of each of the identified EPF contributors.
2. EPF should lead this initiative without interventions of the banks. EPF should just loan out the money with no interest and track the repayment and act as a bank for their member just like a “koperasi” would do.
3. EPF should act as business advisory for these people who are M40 contributors
Encourage this nation to be debt free. Loans from the banks will only increase inequality and disparity. We need change and I am willing to help, discuss and strategize for this nation.
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