About 1430 years ago, Prophet Muhammad (Peace be upon Him), through an incident befallen on one of his companions, had taught us a supplication (Du’a) in responding to the burden of debts. The Prophet had advised his companion to utter these words: “O Allah, I take refuge in You from anxiety and sorrow, weakness and laziness, miserliness and cowardice, the burden of debts and being overpowered by men.”
In the prevailing modern and advanced era, debts continue to be a predicament to mankind, as proven by the current global economic and financial crisis. Retrospectively, if one may recall, the Asian Financial Crisis, which occurred more than ten years ago was also due to debts, in the form of corporate loans. For individuals like us, the prevailing economic trend either may have forced us or enticed us into debts. At a time when household loans are ubiquitous, taking a loan from a bank or a lender and carrying the burden of paying the principal plus interest or profit has been the trend of our lifestyle.
Various groups in the community have continuously voiced out their concerns on this matter, and reminded us against the troubles and perils of debts. Nevertheless, the economic reality may have suggested otherwise. Inevitably, in recent years, due to the volatility in the external economic environment, the domestic household consumption needs to be boosted to offset the slackening external demand for goods and services. This factor, coupled with the steady income and job prospects, as well as the breakthrough in new technology that brings about more innovative and attractive features in consumer goods, has pushed up the demand for household loans. In response to this trend, financial institutions and other household lenders have inundated the market with easy consumer loans products, which make it less of a hassle for households to borrow. The target market for these products is fixed income earners, particularly those who work in the civil service.
Recently, Bank Negara Malaysia revealed the position of household debts in the country. The statistics showed that household debts stood at RM577 billion, or 74.5% of gross domestic product (GDP) compared with RM561.5 billion, or 78.1% of GDP as at August 2010. At this level, loans to household accounted for about 50% of total loans extended by the banking system. Based on the statistics, the central bank said that household debts are still at prudent level.
While we take comfort of the central bank’s view on the level of household debts, the statistics may have limitation, as it only account for household loans within the banking system. Hence, we do not know the real exposure of household debts in this country. It appears to be that there are a lot more lenders in the economy, which operate outside the banking system. These lenders comprise of co-operative societies, licensed and unlicensed moneylenders, and other sources of household credit, which are not classified as financial institutions under the Central Banking Act. In recent times, these institutions have thrived with advertisements and flyers found everywhere in the country. Through these lenders, applicants can bypass the Credit Bureau’s Central Credit Reference Information System (CCRIS). In other words, those who are unable to acquire household loans from financial institutions in the banking system can still enjoy the facility. Apart from these lenders, various government and state agencies also provide study loans to individuals, and there are household loans provided under employment scheme by certain organisations. These loans are not accounted under the banking system and thus, not included in the statistics.
The spending trend of our younger populations is also of great concern. Many observers feel that our younger generation has been adopting a lavish and luxurious lifestyle. Nevertheless, if we are to look at the current economic reality, it is natural for those who have just entered the job market to incur debt. Should someone need a housing loan to purchase a reasonably priced house for his own occupancy, he would also require taking personal loan to pay for the down payment of the house. For those who intend to own a car will likely face similar circumstances. In addition to that, the financial institution is also generous to offer credit cards or overdraft facilities with certain credit limits to the borrower.
It is quite common today for a person to end up having three or more loans facilities instead of only one that he actually requires-thanks to cross selling strategy adopted by the financial institutions. Inevitably, this may create a psychological impact on the borrower-he may think that his purchasing power has been increasing.
The business strategy of the financial institutions warrants an observation. To achieve their goals and performance targets, several financial institutions have outsourced their sales and marketing activities of their personal loans products. As a result, we can now see an aggressive trend of sales and marketing strategies for consumer loans products. This is obvious with the presence of sales agents almost everywhere at strategic locations. Apparently, their income depends on the number of applications and approvals; hence, the more loans approved, the better for them as that is how they earn their living.
In response to the prevailing trend, what we need now is to increase our level of financial literacy. In this regard, the latest financial education programme called POWER (Pengurusan Wang Ringgit Anda) organised by Agensi Kaunseling and Pengurusan Kredit (AKPK) is timely and essential for all Malaysians. We look forward to this programme for the essential financial knowledge it provides in instilling the confidence in us to make our own financial decisions effectively. It is our hope to see the outreach of the programme covering all Malaysians from various walks of life, not only for the urban dwellers, but also for those in the rural areas and encompassing a wide target group from schools to mosques.
In a nutshell, financial management is about managing our lifestyle. In this regard, as to enhance the effectiveness, and to make it more practical to the society, it is vital to include religion dimension into the content of the financial education programme. For example, the programme could include discussions on the positions of debts and wealth from religion’s perspective. In addition, spiritual inputs in managing our daily life need to be included so that we can have a more holistic approach in our financial education programme. Indeed, being one of the pillars of our Rukun Negara, religion input is necessary in all aspects, as it would lead us to live for a better life.
Charles Lamb, a British essayist, once wrote, “The human species, according to the best theory I can form of it, is composed of two distinct races, the men who borrow and the men who lend.” So long as there are two races of the human species continue to exist in this world, likewise, the issue of debts will continue to persist and continue to be the bane of our prosperity.