Using EPF savings as collateral for loans is risky

PRIME Minister Datuk Seri Anwar Ibrahim announced in the Dewan Rakyat on Thursday that contributors who are in dire straits would be allowed to take up loans from a bank with collateral from their Account 2 Employees Provident Fund savings, “EPF-guaranteed bank loans for those in bad financial standing, says PM” (The Star, March 9; online at https://bit.ly/3FdzTQN).

Using EPF savings as collateral for a bank loan is risky and should not be considered. What would happen if the borrower failed to make the required repayments? His EPF savings will still be reduced because the sum owed will eventually be taken out of his account.

If the loan is not repaid on time for an extended period, majority of one’s EPF savings may eventually be used up in servicing the loan unless there is a cap on the amount that can be used as collateral.

It’s almost as if one is permitted to obtain instant cash using future funds!

The government and banks could do better by promoting financial literacy and setting up a special loan programme for those in dire financial difficulties.

A customised loan scheme can help people to get the money they need without making them put their EPF savings up as collateral. Low interest rates and flexible repayment choices could be included in this scheme to help people in managing their debt and regaining financial stability.

PASGETHEN

Shah Alam