Easy loan access plunges civil servants into greater debt rut

Many civil servants are taking out personal loans to finance their weddings. — Pictures by Choo Choy May
Many civil servants are taking out personal loans to finance their weddings. — Pictures by Choo Choy May

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PETALING JAYA, July 2 — Civil servants are finding themselves spiralling deeper into debt as more among them fall prey to the lure of taking hefty personal loans to foot the bill for weddings, home furnishing, or even indulgences like expensive smartphones and cars.

Many even have zero savings to cushion their fall in times of financial emergencies but still apply for loans with great ease, banking on their job security and the easy availability of personal financing offered by non-bank financial institutions (NBFIs).

Mohd Herman Che Rahim is among those who have fallen into such a trap.

Despite having a monthly salary of just RM1,700, 32-year-old Public Works Department general worker pays RM1,480 every month to service his personal and car loans without worrying much about defaulting on his debt.

Like many in the civil service, he is confident of his guaranteed job security and banks generally share the same sentiment as they comfortably issue large personal loans to government employees.

“I work in the government,” Mohd Herman told The Malay Mail Online in a recent interview. “So I have a pension, insurance. If you work in the government, it’s easier to get a loan. They just make sure that the loan does not exceed 60 per cent of your salary every month.”

In 2007, Mohd Herman took a RM90,000 personal loan from a bank and Bank Rakyat Sdn Bhd, which is an NBFI, to finance his wedding, the downpayment for a Honda Civic, a smartphone, home furniture, as well as cameras for his part-time wedding photography business that cost between RM20,000 and RM30,000.

His personal loan, which has a 20-year tenure, costs him RM900 a month, while his car loan costs RM580 a month.

Some civil servants take personal loans for smartphones to keep up with the latest trend.
Some civil servants take personal loans for smartphones to keep up with the latest trend.

Mohd Herman supplements his income with RM2,000 a month on average from shooting weddings part-time. He supports a stay-at-home wife and two young sons aged five years and seven months respectively in a single-storey house in Jitra, Kedah, that was provided for by his father-in-law.

He admitted that he finds it hard to save and only has “just enough to eat”, but had decided to buy a thousand-ringgit smartphone to keep up with the latest trend.

“Smartphones are a necessity,” said Mohd Herman. “Everyone has a smartphone. Even makciks (aunts) are using smartphones.”

He added that a Honda Civic was preferable to a cheaper local car because foreign cars have “better quality”, saying: “If you want to buy a car, you want it to last long.”

Mohd Herman stressed that he took out a personal loan to buy “necessities, not luxuries”, pointing out that a RM90,000 loan was “not much” as he knows others who have borrowed RM100,000 or RM200,000.

In recent months, economists stressed the need for stricter supervision on NBFIs that issue personal loans primarily to civil servants, voicing concern about the vulnerability of low-income households to economic shocks.

Bank Negara Malaysia (BNM) reported in March that 80 per cent of personal loans from NBFIs, which are not supervised by the central bank, goes to government employees with household incomes of less than RM3,000 a month.

The NBFIs include, among others, Bank Rakyat Sdn Bhd and Malaysia Building Society Bhd (MBSB), and development financial institutions (DFIs) such as Agrobank, SME Bank and Lembaga Tabung Haji.

Azlina Azamuddin, a 34-year-old senior executive officer with the Ministry of Domestic Trade, Co-operatives and Consumerism, said she took out a RM120,000 personal loan from the bank to build and furnish a house in Seremban, Negri Sembilan that she is currently renting out at RM350 a month.

Mohd Herman says he spends some of his personal loan to buy home furniture from Ikea.
Mohd Herman says he spends some of his personal loan to buy home furniture from Ikea.

Her personal and car loans amount to RM2,500 a month, while the rent for a double-storey terrace house in Bandar Kinrara, Puchong, costs RM1,300. Azlina’s monthly expenses, including servicing the loans, rent, school fees for her children and groceries, total RM5,190, which is 80 per cent of her RM6,500 monthly salary.

“It is very difficult to save every month,” Azlina told The Malay Mail Online recently. “It’s very dangerous; you never know what will happen.”

Azlina said she forks out an additional RM400 to RM500 every month to pay off her credit card debt that has snowballed to RM8,000 since 2011.

“My last debt was RM10,200,” she said. “Now I just managed to cut it to RM8,000. That’s when I realised, oh gosh, I’m hooked, caught by the interest rate. Only RM8,000. Terrible lah. Nightmare.”

However, she does not fear defaulting on her debt, saying that she would never lose her job as a “permanent government servant on a pension scheme.” Recession, similarly, is not a concern because of her “stable” job.

According to the General Orders governing the civil service, a worker is guaranteed their job until they reach pension age. One will only be terminated as a result of disciplinary action or the dissolution of their department.

“If you’re in the private sector, you’ll be worried, in terms of security,” said Azlina. “Sometimes you tend to get retrenched, so you feel insecure. But in the government, I’m on a pension scheme. You’re safe there. There’s no upgrade in your salary, but things are stable.”

Malaysia’s household debt to GDP ratio rose from 75.8 per cent in 2010 to 76.6 per cent in 2011, and to 80.5 per cent in 2012, which is one of the highest in the region.

Although NBFIs and DFIs only account for 12 per cent of Malaysia’s total household credit, they are responsible for 57 per cent of personal financing credit, a figure that has risen significantly.

The comparative ease of obtaining personal loans has increased the percentage of personal financing over household debt from 16 per cent in 2011 to 17 per cent last year.

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