KUALA LUMPUR: The rising cost of living and challenge of meeting stringent bank requirements are still the leading causes of the alarming surge in borrowers resorting to unlicensed money lenders and loan sharks, particularly during festive seasons.
While festive seasons typically entail higher expenses, ranging from travel costs back to the hometown to purchasing festive celebration items, these factors continue to entice borrowers to turn to loan sharks for 'hassle-free' loans.
The convenience and speed of obtaining loans from these unlicensed lenders, mainly through social media, can be tempting for individuals facing immediate financial pressures.
Direct Lending Sdn Bhd founder Hui Yik Seong said the escalating influence of loan sharks, who now extensively utilise social media platforms to reach potential borrowers, highlights the 'no-fuss process' of obtaining quick money and its potential to enhance the enjoyment of festive celebrations.
"The easy accessibility of these unlicensed lenders, coupled with the appeal of quick cash, poses significant risks to individuals' financial well-being.
"The high-interest rates and unethical recovery practices of these lenders can lead to long-term financial hardships, trapping borrowers in a cycle of debt that is challenging to escape, especially during times of financial vulnerability such as festive seasons," he told Business Times.
Hui said while the effectiveness of law enforcement efforts is noteworthy, there is a need for enhanced public awareness and education regarding the perils of loan sharks.
He said the reported surge in arrests linked to loan shark activities is also a pressing concern.
The October 2023 statement from Malaysia's Deputy Home Minister underscores the gravity of the situation, revealing that nearly 900 suspected loan sharks were apprehended between January and August 2023 and over 1,200 in 2022.
This highlights the prevalence of unlicensed money lending and underscores law enforcement's proactive measures against this illicit activity.
Hui said despite these endeavours, the issue persists, mainly because unlicensed lenders can easily extend credit, especially when contrasted with the more stringent processes employed by banks and licensed lenders.
"Operating frequently through social media, these unlicensed lenders provide quick and effortless loans, particularly enticing those facing immediate financial challenges.
"The impact of their practices extends beyond financial implications to societal consequences, leading to significant personal and familial stress and, in extreme cases, posing threats to personal safety," he said.
Addressing the issue of unlicensed money lending requires a multifaceted approach, including legislative changes and regulatory measures, Hui noted.
The Ministry of Housing and Local Government, which regulates the money lending industry, has taken steps to introduce online lending in 2020, thereby providing safer and more accessible avenues for legal borrowing.
The rise of digital banks in Malaysia also represents a significant step towards providing more accessible financial services to the public, he said.
"Additionally, the establishment of the Consumer Credit Oversight Board Task Force in 2021 to regulate non-bank credit providers and credit service providers, with one of the tasks being to provide clarity for non-bank credit providers in providing Shariah-compliant financing options, will help to cater for the financial needs for a broader spectrum of borrowers, thus reducing the allure of unlicensed lenders," Hui said.
Direct Lending is an online personal lending marketplace that enables borrowers to find, apply and receive financing that best suits them.
As a recipient of a grant in 2019 from Cradle Fund Sdn Bhd, Direct Lending has also recently launched its Syariah-compliant auto service financing, which enables car owners to obtain financing to pay for their essential car repairs at the workshop.
"As a player in the lending industry, we understand the importance of staying abreast of regulatory developments and ensuring compliance with all applicable laws and guidelines.
"Our engagement with regulatory bodies is an ongoing process to maintain the highest standards of legality and ethics in our operations.
"A strong regulatory foundation is crucial for building trust with our users, ensuring they feel secure and confident using our platform for their financing needs," Hui said.
Looking ahead to 2024, Hui said Direct Lending will continue to advance its mission of providing seamless and personalised financing experiences.
The company aims to introduce new features and services that cater to customers' diverse and evolving needs.
"This includes expanding our needs based on financing solutions beyond car repair to cover other emergency and personal needs like home repairs, medical expenses, or business expansion.
"We are also exploring strategic partnerships and collaborations to enhance our service offerings and extend our reach.
"These initiatives are designed to provide our customers with more comprehensive and convenient solutions, including insurance protection when financing with Direct Lending," Hui said.
