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PETALING JAYA: A new consumer credit law, while intended to protect borrowers, risks disproportionately impacting poorer Malaysian households, according to a recent report by the Institute for Strategic Analysis and Policy (INSAP). The think tank argues that legislation alone cannot address the underlying structural issues that trap many Malaysians, especially young people and those in the informal sector, in cycles of debt.

INSAP's analysis highlights the complex factors contributing to rising household debt in Malaysia. These include stagnant wages, the rising cost of living, limited access to affordable financial products, and a lack of financial literacy. While the new law aims to curb predatory lending practices and improve debt management, it doesn't tackle the root causes of financial vulnerability.

“Simply regulating lending practices isn't enough,” stated Dr. Lee Jia Ling, a senior researcher at INSAP. “We need a more holistic approach that addresses income inequality, promotes financial education, and expands access to affordable credit options for low-income individuals.”

The Concerns:

• Increased Compliance Costs: The new regulations could lead to higher compliance costs for lenders, potentially resulting in reduced credit availability for those who need it most.
• Focus on Formal Sector: The law primarily targets formal lending institutions, leaving informal lenders – often a source of credit for vulnerable populations – largely unregulated.
• Limited Impact on Debt Cycle: Without addressing the underlying economic challenges, the law may only provide temporary relief without breaking the cycle of debt.

INSAP's Recommendations:

• Wage Growth: Implement policies to promote wage growth and ensure that wages keep pace with the rising cost of living.
• Financial Literacy Programs: Expand financial literacy programs to educate Malaysians about responsible borrowing and debt management.
• Affordable Credit Options: Encourage the development of affordable credit options tailored to the needs of low-income individuals, such as microloans and community-based lending schemes.
• Regulation of Informal Lending: Consider regulating informal lenders to protect borrowers from exploitative practices.
• Social Safety Nets: Strengthen social safety nets to provide a safety cushion for vulnerable households facing financial hardship.

The think tank emphasizes that a multi-faceted approach is crucial to effectively address the issue of household debt in Malaysia. While the new consumer credit law is a step in the right direction, it should be complemented by broader economic and social reforms to ensure that the benefits are felt by all Malaysians, particularly those most at risk of falling into debt.

The findings from INSAP’s report call for a deeper discussion on the long-term solutions needed to build a more financially resilient Malaysia. Ignoring the underlying structural issues will only perpetuate the cycle of debt and exacerbate the challenges faced by vulnerable households.