By ©Yeap Ghim Guan
The loan shark issue has once again re–surfaced to become a national preoccupation in recent times judging by the sensational headlines of debtors harassed by loan sharks, one to the point of suicide, and the constant letters to the press. Even the politicians are getting involved, and there is a hint of new legislation. It has taken centre stage among the many social ills confronting the general public. This is mainly due to the social repercussions arising from the enforcement methods used by these loan sharks, which in some instances even border on the ingenious.
The fact is that loan shark activities have been around for many many years, and probably will remain so. The difference is only that due to the present unprecedented dire economic conditions prevailing both nationally and internationally and the conjunction with the new “policies” in the banking sector, this system of “off–banking” financing has assumed an important role in the economic and social life of the nation. It is now, big business! A new generation of loan sharks, who can even provide loans at par with the financial institutions in unique cases and their widespread use and activities, have contributed to propel this problem into the front–pages of national dailies, if not the collective national conscience. Yet, what we see is merely the tip of the iceberg.
It is a multi–faceted problem, and any attempts to resolve it must begin with an understanding of the underlying causes. However, it is a solution that will not find itself in mere legislation. The very institution of “loan sharks” has complex and deep roots and is highly resistant to eradication, and it can probably only at the very most be attenuated in its excesses because it is endemic or even symbiotic to a “market economy,” such as ours.
Firstly, we need some consensus as to the meaning of the term “loan shark.” The actual and more familiar term used by the general population in Malaysia is not “loan shark” but the vernacular – “Along” (“ah long”) and it is not known if it is a Malay or Chinese nomenclature. But, this is clearly a Malaysian term, and understood by most to mean, a person who carries on moneylending activities, charging high interest without a licence under the Moneylender’s Act, 1951.1 The nearest the Act comes to recognize a “loan shark” is by implication under its “Offences” provisions and only as an “unlicensed” moneylender2 and the Act confines its application to “moneylending business.”3 Yet, “business” is no–where defined in the Act. Its definition has narrowed through judicial decisions. In practice, the debtor is hard pressed to prove that the “loan shark” is carrying on a moneylending “business” as by judicial pronouncements, some system of operation is required, and a debtor could hardly be expected to call on other debtors of the same loan shark to come forward to testify. An Act which has endured for more than half a century surely is not crafted for the new millennium. In older times, because this activity used to be identified with a certain Indian community, it used to be called “chettiar”, no reflection on Indians with this suffix to their names!
There is also the Malay expression used equally as widespread and perhaps more explicitly, termed “sepuluh–tiga” or even “sepuluh–empat.” The terminology gives the false impression that the practice is prevalent among the Malay population but more to the lingua franca it has become. The numbers actually denote the interest rate charged! “Sepuluh–tiga” means what it says, interest rate at 3 cents out of every 10 cents, which means 30% interest! Its staggering impact is clearer when we realize that we are talking about per mensum, not per annum! That means for a loan of RM1,000/–, the interest rate is RM300 per month, a mind boggling RM3,600 in one year! For most borrowers, it is a real financial black–hole where they are sucked in, deeper and deeper!
All this takes place within a shadow economy, unregulated, unrecognized and unseen by the government of the day– see no evil, hear no evil and speak no evil? Until at times like these! The common denominator in these transactions is that, firstly, the first instalment of interest is taken “up–front” – meaning for a loan of RM1,000/– at a rate of 30% per mensum (RM300/–) the borrower actually only receives RM700/–. Secondly, the “security” is unconventional, usually by way of a vehicular registration book, passports, NRIC cards, or even ATM cards and with even guarantors signing together with the borrower. There are other more exotic “securities!”
There is another specie of loan shark activity, called “hari–hari” not to be mistaken for a Hare Krishna chant! – this signifies that the interest is collected on a daily basis. The “hari–hari” loan is typically meant for the most depressed “classes” such as labourers, hawkers or market stall–holders. Here the loan shark virtually has an army of collectors (enforcers?) on motorcycles going on their morning rounds to collect. This system is superficially meant to be “painless,” but in reality, totally exploitative and harsh, because the interest is collected daily, well before the end of the month, when normally due. For instance by the mid–month, half the interest is already in the loan shark’s hands, and he is already rolling it! And according to reliable sources, “sepuloh–lima” loans are not unknown.
Moneylenders Act, 1951
The Moneylender’s Act, 1951 is the only Malaysian legislation specially addressing this activity and has remained pristine without any major improvements ever since its introduction. An indication of its timelessness or on the other hand that it belonged to a society and an age long forgotten?
A “Moneylender” is defined by section 2 of the Act as “includes every person whose business is that of moneylending or who carries on or advertises or announces himself or holds himself out in any way as carrying on that business whether or not that person also possesses or earns property or money derived from sources other than the lending of money and whether or not that person carries on the business as a principal or as an agent.”
Although this appears to cast a wide net to include all those conducting such “business”, it is further limited in its application by the amendment, section 2A, entitled “Non–application of Act and exemption therefrom.” The exceptions really erode the protection afforded by the Act and further undermine its objectives, that is to protect against usury for a whole class of persons and organisations. Section 2A in fact is the most serious assault on the protection of the Act and exempts from its provisions the “moneylending” business of a wide swath of persons and organizations, such as, “any co–operative society”, “bank”, “insurance company”, “pawnbroker” and “finance company”, under their respective legislations.
But, the most omnibus exceptions is section 2A(h) which purports to exclude from its application –“any person bona fide carrying on any business not having for its primary object the lending of money in the course of which and for the purposes whereof he lends money.”4 Section 2A(2) further continues the erosion by giving the Minister the power upon satisfaction of the conditions under subsections 2A(2)(a) and (b) to “by notification in the Gazette exempt such company or society from all or any of the provisions of this Act.”
Against normal legislative principles, the Section 2A amendments were granted retrospective application by virtue of Section 4(2) of the Act.5 By whatever measure or criteria, these amendments must be viewed as erosion of the protection intended by the authors of the original legislation.
Further erosion is enshrined in exempting the categories under Section 2A from the “presumption clause” of the Act, which had presumably placed the burden of proof on the “person who lends”.6
Neither a borrower nor lender be
In fact, although the carrying on of a moneylending business without a licence is an offence under section 8 of the Moneylending Act,1951, lending money per se, is not.7 This is by virtue of the definition of “Moneylender,” and perhaps this is as it should be.8 People have lent money to friends and relatives in times of need without the expectation of one cent’s interest. Yet, most of the established religions have one thing in common in that they condemn usury.9 Although there is an expression, “neither a borrower or lender be,”10 which incidentally was the express ethos of the Prime Minister, in his historic retirement speech before the UMNO (Baru) General Assemby last year, actually, it should carry the all important rider “for interest.”
An unfriendly loan
Therefore, in common law, an expression has sprung up, known as the “friendly loan.” It is a play on semantics, to whom is the loan friendly? The way some friendly loans keep on ending up in the Courts, as any practicing lawyer can testify, they are not that “friendly”– at all! A feature of a “friendly loan” at least by presumption is that it is without interest! That is probably the “friendly” element. But, invariably, when a party comes to Court in the case of every friendly loan, they ask for the statutory Court sanctioned (but optional) 8% per annum interest “from the date of judgment.”11 The Civil Law Act prohibits “interest upon interest.”12 If such loans are genuinely “friendly” the question of any form of interest should not even arise. Surely, the acid test of the true “friendliness” is that there should not be any expectation of interest, Court sanctioned or otherwise. Therefore, notwithstanding the strict prescription of the good doctor, the lending of money, is not immoral or criminal. The fact that you lose a friend, his lament, is a separate risk element. By virtue of section 15 of the Moneylenders Act, 1951, a loan by an unlicensed moneylender is unenforceable.13 But, alas, there are wolves in sheep’s clothing, and many an along disguise their loans as interest free, “friendly” loans.
The perceived gravamen is that alongs charge exorbitant interests, outside that mandated by the provisions of the Moneylending Act, 1951, apart from the question of legality. Moneylenders under the Act are only entitled to charge simple interest between 12% to 18% per annum, based on the criteria whether security for the loan is provided or not.14
High interest rates are now the norm, and still remain in these perceived low interest–rate times, a relic of the days of the bubble economy of the 90’s. Only the older generation remember the days of 2% per annum interest rates. Yet, today, with the FED in America, perennially pruning interest rates to a universal all time low, some so–called legitimate financial institutions (who are exempted from the Moneylenders Act, 1951) still charge exorbitant interest rates, not un–akin to those of “along” moneylenders, in fact on a compound basis, which the Moneylenders Act, 1950 prohibits.15 The high interests, euphemistically called, penalty, default interest, minimum charges or late charges (a rose by any other name?) are really compound interest practiced by these finance institutions, have really blurred the once distinction between loan sharks and these financial institutions, yet these institutions enjoy the protection of the law, and can have recourse to the much abused “conclusive” clauses.
Therefore, if the gravamen to be addressed is exorbitant and unconscionable interest rates and compound interests we could cast our net ever wider.
What is troubling the conscience of the society is not merely the lending of money at high interest rates, because at the peak of the bubble economy, interest rates literally reached astronomical heights, and credit card companies are still the main culprits, to this day! The perceived problem with alongs is not merely the unconscionably high interest rates, but their modus operandi of collection or enforcement. Methods that are anti–social, if not verging on the criminal, i.e., intimidation, harassment, force, and violence leading to the introduction of criminal elements, and resulting in the rare defaulter who cannot take it, resorting to suicide.
Section 30 of the Moneylenders Act, 1951 is the only provision which addresses the collection methods of the licensed moneylender. It prohibits certain methods which border on harassment of a debtor.16
Yet resort to extra–legal avenues of enforcement or collection in recent times have not been confined to the alongs. Some legitimate finance companies have also resorted to so–called “collection agencies”, outside the normal legal process. A form of “para–legals” or “para–illegals” depending from which end of the telescope you are looking from. Like the methods employed by the alongs, these extra–legal “enforcers” are paid on a commission basis and therefore presumably better motivated and more effective.
An ingenious collection, or rather harassment tactic documented, was how a “gang” of collectors (and there is no better description for them) descended on an unsuspecting debtor and proceeded to conduct mock funeral rites parked in front of his shop–premises, playing funeral dirge, all dressed in mourning–black, more sinister than the characters of the Hollywood blockbuster movie, MIB! This had the immediate result of the debtor closing his shop and fearing to come out! Section 30 of the Moneylender’s Act, 1951 was never crafted for such innovative methods of enforcement.
Some of these “agencies” are not very choosy of the methods of collection, partly because they are paid on a percentage basis! Not unlike the strong arm methods of infamous “re–possessors” of the Hire Purchase industry, which once grabbed the headlines, but only resulted in an ineffective bit of government intervention by way of “guidelines” to the Hire Purchase Act, 1967 governing the conductor of re–possessors. Of course no self–respecting financial institution would own up to the use of such “enforcers,” but the practice is prevalent if not infectious and Bank Negara should discourage some of these unhealthy developments.
Therefore, the loan sharks are not alone as part of the problem.
The unsavory methods of “enforcement” are definitely not confined to loan sharks, they are only the most high profiled and unrestrained.
Birds of a feather
It must also be recognized that the strong arm methods and activities of loan sharks are also not confined to unregistered and therefore illegal moneylenders, the alongs. Certain if not a majority of licensed moneylending establishments, also charge interests outside the provisions of the Moneylenders Act, 1951, the so–called “under–counter” interest, which is often excessive or just as oppressive, when it is appreciated that it is often paid, “up front!” For some the licence is only a convenient canopy! Although a lot of these activities have been documented in Court cases, reported or unreported, they have become more rampant and “spectacular” due to the increasing important role that Moneylenders and unlicensed Moneylenders play in our, capitalist economy!
The Courts of today, are less indulgent and tolerant of the hardships (or folly) of the borrower, unlike earlier Courts, and now increasingly refuse to go behind the agreement or document, the principle of caveat emptor? Perhaps, it is because of the regularity of such incidents, that the judicial mind is jarred numbed! Perhaps, it is something else. Yet, the Moneylenders Act, 1951 has not changed much, although the perception has. But have we forgotten the creed of the con–men, “a sucker is born every minute,”–except now probably every second. But then the courts are under a duty to protect the public from its own folly.
It bears repeating that Government and finance institutional policies and practices have directly contributed to the increasing important role of Moneylenders, both legal and illegal.
Accentuating the negative
The very policy of consolidation of banks and finance companies into huge conglomerates, mean that there is less competition. Being big players, in the financial scheme, there is a tendency to go for financing of money–making mega projects, while neglecting if not contemptuous of the “business” of the small man, no matter what guidelines or controls are put out by Bank Negara.
The system of black–listing of so–called “defaulters” and the widespread system of data tracking of “defaulters” in this computer age, leads to a growing sub–culture of citizens who operate below the radar of the normal financial system. Even the policy of black–listing and prohibition on people who issue a number of bounced (“bad”) cheques contribute to this problem and cause “collateral” hardship. For that matter, many companies directly credit wages to bank accounts, imagine the hardship to a “black–listed” employee! This policy could undergo a review, for a “caring” government.
Being outcasts, and necessity being the mother of all inventions, these effectively disenfranchised group, resort to and therefore fall easy prey to alongs and moneylenders.
Official campaigns to urge on the economy, like “shop till you drop”, “24 hours shopping” and credit cards virtually thrusted on every shopper walking along shopping malls and the ilk, a spendthrift society makes.
We must not be fooled into thinking that the high interest rates and methods used by these “loan sharks” mean that they are beyond the pale of the Courts, and need only resort to strong arm tactics. Some of these also manage to “enforce” their loans through the normal judicial system and have pulled it off before unsuspecting Judges, thereby eroding also the confidence of the proletariat in the system of justice.
Goods not sold nor delivered
Two cases in point–
Loans disguised as duly acknowledged delivery orders and invoices of purchase of totally innocent looking, albeit fictitious goods, are more prevalent than people think! There is documented a case where a small electrical shop, purported in one day, to sell and deliver electrical goods that would have taken 2 container lorries to deliver! A case of goods not sold or delivered.
Loans disguised as bona fide land transactions, with buy–back provisions, at a higher price is another modus operandi. Some with absolute finesse, some crude, with conflicting and multiple agreements, even attested by lawyers. A device of “sell and buy back”. Such cases are known to have gone before the Courts, and specific performance have even been duly ordered. And surely there are other forms!
In fact, this system of “sell and buy back” is not new, only the methods have “improved,” and usage become mainstream. For ages, in Kedah state and other Malay states a practice has grown, known as “Jual–Janji” and are well documented in our law journals.17 An especially pressing need before the advent of Tabong Haji.
But, of course, some of these methods are not beyond detection under a watchful and alert judicial scrutiny, but, in these days of statistics, how many Courts have time for a besieged litigant, on his last legs?
In truth, loan shark if recognized as an activity where a loan is made outside the purview of the Moneylenders Act, 1951, has a distinguish following, and at last count had among its ranks as practitioners, a reputable VIP politician, professionals and a manager of a reputable foreign trading agency, JP’s, Datuks and even Tan Sri’s, among others at one time or another and their activities have gone on to finance more than a few successful professional careers and purchase of a datukship!
A Commission of Inquiry or Parlimentary Committee
Clearly, there is a problem to address, but not by sweeping it under the proverbial carpet or a mountain of pre–conceptions. A Commission of Inquiry should be set up to study the whole problem, or at the very least, a Parliamentary Committee to investigate and collect a comprehensive picture from all sides of the professional, social, economic and even political spectrum. Obviously, like the anti–aides drug, it has to be a cocktail of solutions, and no one approach holds the answer. It is high time a Fair Contracts Act be enacted to protect the public, not only from the alongs but from the big financial institutions and policies adopted that will not drive the desperate into the arms of the awaiting lethal embrace of the along. The worst scenario is to act in haste in response to the public clamouring, as it often ends in ad hoc measures, that are often worse than the disease it is sought to cure. But we certainly cannot wait till the next suicide debtor, there are too many high–rises, in the country!
Of course, the alongs are not about to come forward to present their views, it would be the kiss of death, but it will not serve the issue to come down hard only on any one–side of the problem, or to seek scapegoats, which is the oft chosen Malaysian response, especially by the authorities. Also, what we do not need is to politicise the issue and finger–pointing.
Probably there is no one panacea to the whole problem, its prevalence proves that our present system do not serve the rakyat, there has to be a comprehensive approach, but the question is, for a government with so many “pressing” priorities and distractions, has it got time for such “triflings?”
A wise judge presiding over the only Royal Inquiry into a Local Government in Malaysia once quoted from Roosevelt that “men with muckrakes are often indispensable” provided they know when to stop raking!
 An Act relating to persons carrying on the business of moneylending. Date of commencement in West Malaysia 31.3.1952–LN79/52.
 Moneylenders Act. 1951 section 8. “Offences– If any person –
(a) takes out a licence in any name other than his true name;
(b) carries on business as a moneylender without holding a licence”
 Section 2 defines “Moneylending” as –"moneylender" includes every person whose business is that of moneylending or who carries on or advertises or announces himself or holds himself out in any way as carrying on that business whether or not that person also possesses or earns property or money derived from sources other than the lending of money and whether or not that person carries on the business as a principal or as an agent."
 Subs (1) amended by PU (A) 290/90 and PU (A) 406/91.
 Moneylenders (Amendment) Act 1988 (Act A688) “The persons to whom the Ordinance is made inapplicable by subsection (1) of the new section 2A introduced into the Ordinance by subsection (1) of this section shall be deemed at all times before the commencement of this Act to have been included among the persons who did not fall within the definition of “moneylender” in section 2 of the Ordinance as that definition stood before the commencement of this Act.”
 Moneylenders Act 1951 Section 3 “Save as excepted by section 2A (1) and (2), any person who lends a sum of money in consideration of a larger sum being repaid shall be presumed until the contrary be proved to be a moneylender.”
 Section 8 Offences. “If any person–(a)…. (b) carries on business as a moneylender without holding a licence… (c)…. he shall be guilty of an offence under this Act…”
  1 MLJ 425 Ponnuthurai v Nasib Singh. “…lending of money is something which is not forbidden by law.” Federal Court
 .A dirham which a man knowingly receives in usury is more serious (a crime) than thirty–six acts of fornication. (Ahmad, Daraqutni). (Sayings of Muhammad (pbuh). by Prof. Ghazi Ahmad).
 William Shakespeare: “Neither a borrower, nor lender be: For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.” Hamlet.
 Order 42 rule 12 Rules of the High Court, 1980.
 Civil Law Act, 1959 section 11. “Power of Courts to award interest on debts and damages
In any proceedings tried in any Court for the recovery of any debt or damages, the Court may, if it thinks fit, order that there shall be included in the sum for which judgement is given interest at such rate as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgement:
Provided that nothing in this section –
(a) shall authorise the giving of interest upon interest;
(b) shall apply in relation to any debt upon which interest is payable as of right whether by virtue of any agreement or otherwise; or
(c) shall affect the damages recoverable for the dishonour of a bill of exchange.”
 Moneylenders Act, 1951 Section 15 “No contract for the repayment of money lent after the coming into force of this Act by an unlicensed moneylender shall be enforceable.”
Moneylenders Act, 1951 Section 22 “Interest above 12 per centum per annum for a secured loan or 18 per centum per annum for an unsecured loan presumed excessive.”
Moneylenders Act, 1951 Section 17: Prohibition of compound interest
(1) Any contract made on or after the commencement of this Act, for the loan of money by a moneylender shall be illegal in so far as it provides, directly or indirectly, for the payment of compound interest, or for the rate or amount of interest to be increased by reason of any default in the payment of sums due under the contract:
Provided that provision may be made by any such contract that if default is made in the payment upon the due date of any sum payable to the moneylender under the contract, whether in respect of principal or interest, the moneylender shall be entitled to charge simple interest on that sum from the date of the default until the sum is paid at a rate not exceeding the rate payable in respect of the principal apart from any default, and any interest so charged shall not be reckoned for the purposes of this Act as part of the interest charged in respect of the loan.”
 Moneylenders Act, 1951 Section 30: “Besetting residence, etc., of debtor”.
“Any moneylender, who, with a view to harassing or intimidating his debtor or any member of the debtor's family, either personally or by any person acting on his behalf, watches or besets the residence or place of business or employment of the debtor, or any place at which the debtor receives his wages or any other sum periodically due to him, shall be guilty of an offence, and shall be liable to a fine not exceeding two hundred and fifty ringgit, or to imprisonment for a term not exceeding three months: Provided that an offender being a company shall be liable to a fine of one thousand ringgit.”
 Yaacob bin Lebai Jusoh v Hamisah Binti Saad  1 MLJ 255 Court of Appeal; Lebai Taib v Abdul Ghani & Anor.  1 MLJ 109 Federal Court; Mohamed Noor bin Awang v Mek Tok Binti Mat Min  2 MLJ 248 Federal Court; Datuk Jagindar Singh & Ors v Tara Rajaratnam  2 MLJ 196 Federal Court “… the Malay customary transaction known as jual janji. In such a transaction the borrower transfers his land to the lender on payment who takes possession of the land and may make any profit out of the land as a sort of interest payment. The borrower is entitled to have the land transferred back to him on paying the debt.”
 Theodore. Roosevelt– “The men with the muckrakes are often indispensable to the well–being of society, but only if they know when to stop raking the muck, and to look upward to the celestial crown above them…If they gradually grow to feel that the whole world is nothing but muck their power of usefulness is gone.”