Letter to Editor
THE rakyat is elated that finally, the Government and Pakatan Harapan have mustered enough trust and goodwill to work together for the rakyat’s benefit via the Transformation and Political Stability MoU inked in Parliament’s banquet hall recently.
One of the efforts include providing an interest-free exemption for bank loan moratoriums for the bottom 50% of Malaysians, for the last three months of 2021.
As we have seen the ravages caused by the COVID-19 pandemic not just to the lives to the rakyat but also economically, we need to be cautious with how assistance is provided to lift the rakyat out of this catastrophe.
To put things into perspective, we learn from press reports that banks have been providing moratoriums and repayment assistance to those affected.
Banks will only ask for repayments when customers are able to repay.
Although an interest-free exemption creates nice soundbites, fact remains that those who are already enjoying the moratorium or repayment assistance has no worries about paying interest for the time being.
An interest free exemption does not help have any positive impact while the economy continues to be in a worrisome state.
Money from this exemption does not go to the customers as disposable income.
It doesn’t go to businesses to buy raw materials, to hire workers and boost employment and it doesn’t create profit so they can then contribute to the Government via taxes.
There are no multiplier effects at all.
On the contrary, it will have adverse effects, beginning with harming investor confidence, and more.
Beginning with a decline in dividend to retirement funds such as Employees’ Provident Fund (EPF) and Kumpulan Wang Persaraan Diperbadankan (KWAP) by the banks as their balance sheet is affected, followed by a decline in share prices, this is only the beginning of the negative effects of such a policy.
It snowballs with reduced income tax contribution from the banks to Government’s coffers, followed by questions coming from depositors – Is my money safe?
As custodian of public funds, this is a very important question that banks have to answer to in ensuring financial stability for all stakeholders involved.
Another question that banks have to answer to is – will we have access to finance?
Instead of causing banks to bleed just for the sake of sounding good, why not let banks play its role in rebuilding the nation’s economy?
As a financial intermediary, it is their role to provide financing while protecting their stakeholders, which include depositors, shareholders and the Government.
Now, it is more crucial than ever that they exercise that skill to help our ailing small and medium-sized enterprises (SMEs).
Having a policy for banks to provide financing – particularly to micro and small business enterprises – would help them get back on their feet and create the multiplier effects that the nation needs now.
According to SME Corp Malaysia, 97.2% of business establishments in 2020 consist of SMEs.
Out of this 1.15 million SMEs, 78.4% or 903,174 firms are in the micro-SME category, followed by 20% or 229,876 firms are in the small-SME category.
Imagine if the Government can work with banks to provide a guarantee to finance these SMEs, particularly the micro SMEs which are mostly unbanked due to their small scale with insufficient financial information, the nation’s economic engine will restart in no time and these businesses will start selling their goods and hiring staff to support their business operations.
More people soon be getting their jobs back and be able to put food on the table for their families.
As opposed to giving an interest waiver which doesn’t contribute any positive effect during this critical juncture, every ringgit that goes to the SMEs via this financing route will go a long, long way.
An interest waiver also causes harm.
The worst fear we felt is the moral hazard from borrowers who are now fed with the notion that non-repayment of loans would be acceptable as policy will always side with them.
This is probably the worst attitude that can be perpetuated at this moment as whether in life or business, it can only happen when there is trust.
Trust, and confidence that tomorrow will be a better day, is the most valuable currency at this juncture. Don’t squander it! – Sept 15, 2021.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.