Bank Negara Malaysia (BNM) has blundered in its loan moratorium benefit announced earlier by the Prime Minister as one of the government’s ways of easing the people’s hardship during the current Covid19 pandemic crisis. In order to contain the spread of the disease, the government had ordered an economic and social lockdown through its Movement Control Order (MCO) that has been in effect since March 18, 2020. The lockdown, of course, has enormous social, mental and economic implications with many businesses shutdown and many workers rendered unemployed. Many are forced to take salary cuts. Therefore, RM250bil economic stimulus package was announced by the government, which included a 6-month moratorium on loans and fixed-rate Islamic financings.

The 6 months in question are April 2020 till September 2020. The borrower is required to start repaying from October 2020 onwards. Initially borrowers were informed that the moratorium is automatic, i.e. the opt-in is automatic, and the installment amount will remain the same when payment resumes in October, which means no interest or profit is charged for the moratorium period.
While the rakyat welcomed this move as providing some breathing space during these hard times it is highly regrettable that BNM with the support of the Finance Minister reversed the decision on 1st May, 2020. Now BNM together with the Association of Banks in Malaysia say that the moratorium is no longer automatic, i.e. now the customer must choose to opt-in and that interest will be charged for the 6-month moratorium period and accordingly the monthly installment amounts will be increased when payments resume.
If the customer does not wish the installments to be increased, then the customer must pay all the accrued installments in October, i.e. a total of 7-month installments. Isn’t this ridiculous? When businesses are collapsing and people’s incomes are severely affected how do you expect them to pay 7-month installments in a lump-sump?

In the current situation where the whole world is facing a devastating pandemic is this how a Central Bank should come forward to help ease borrowers predicaments? Isn’t this force majeure in legal terms? On the contrary, this U-turn further squeezes the already devastated rakyat. BNM seems to be out of its mind.
Clearly this proves the banking system cannot be relied upon in helping the country in times of crises. The banking system, which manages the flow of money in the economy, is of paramount importance for any economy, and therefore should never be left in private hands to operate it. The banking system ingeniously places itself as though it operates within a RISK-FREE world. It never wants to share the risks that the greater economy is faced with.

Not many people, including even our political leaders, understand or realize that it is the privately owned commercial banks that actually create most of the money of the nation. The banking system creates credit out of thin air, and charges interest or profit on them. The BNM only regulates how much these banks can create credit out of thin air, by manipulating the fractional reserve ratio.
Given such privileged position, by reversing the moratorium given the bankers clearly show their greedy nature and unwillingness to share the hardships of the rakyat in this pandemic. Indeed by charging interest for the moratorium period, the total interest or profits earned will be even larger for the banks, compared without the moratorium. It’s like when one misses payments on credit-card balances, the interest charge grows. The same happens here. By charging interest and earning more from the moratorium period, actually gives NO MEANING TO THE WORD “MORATORIUM”. This is truly a SHAME.

It is pertinent therefore for the government to intervene at this juncture. The government must come forward and assist the people who are on the verge of collapse. In fact, a two-month lockdown of will cause many problems along the way. We will see many bankruptcies and foreclosures in the near future. In the current situation, the real problem is not with the borrowers but rather the system itself. The system has been disrupted by the pandemic but the entire burden is placed upon the shoulders of the rakyat, while the bankers make profit from it. Hence the rakyat need to be protected from bankruptcies and foreclosures. Perhaps a special body can be set up by the government to look into this issue. Consumer associations like Persatuan Pengguna Islam Malaysia (PPIM) and some legal bodies like the Malaysian Arbitral Tribunal Establishment (MATE) can be appointed to sit in the body to oversee the smooth remediation of the problem.

Also for the long-run we call upon the government to take back the power to create money out of thin air away from the commercial banks and be vested with some government agency. Money created out of nothing should be publicly owned. Only a government elected by the rakyat can be trusted upon to take care of the welfare of the people. Knowing the nature of banks, it is also not a good idea to appoint a banker as the Finance Minister. We urge the Prime Minister, all politicians, NGOs and the rakyat to look into this aspect of the economy.

Prof. Dato Dr. Ahamed Kameel Mydin Meera
Movement for Monetary Justice Malaysia
3 May 2020

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