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Financial Education on Credit

11 September 2012

Koid Swee Lian, CEO Credit Counselling & Debt Management Agency (AKPK)

Asian Seminar on Financial Literacy & Inclusion

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Malaysia – Economic Statistics

2010 2011 GDP Growth RM558.4 bil (7.2%) RM588.3 bil (5.1%)

Gross National Savings to GNI 34.2% 34.6% HH Deposits RM417.4 bil RM468.6 bil Debt Repayment (excl. credit cards) RM120.8 bil RM135.3 bil Estimated debt service burden (ratio of debt repayment to disposable income) 47.8% 48.1% Inflation rate 1.7% 3.2% Population (mil persons) 28.3 mil 28.6 mil Labour force (mil persons) 12.2 mil 12.6 mil Employment (mil persons) 11.8 mil 12.2 mil Per Capita Income RM26,219 RM28,175 (USD8,140) (USD9,204) Ratio on HH Debts to GDP 75.9% 76.6% GDP Value RM765.9 bil RM852.6 bil Source: Bank Negara Malaysia (BNM), including BNM’s Annual Report 2011, and Financial Stability & Payment Systems Report 2011

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Survey feedback of 1,002 respondents aged 18 -35

• 51 % took car loans

• 39% possessed credit cards

– 90% had only up to 2 credit cards

– 10% had 3-6 cards

• 33% took study loans

• 28.9% took housing loans

• 15% took personal loans

Source:

Survey of Financial Behaviours & Financial Habits of Young Workers undertaken by Consumer Research &

Resource Centre, Malaysia for the Central Region in July 2012

Debts of Young Workers

AKPK’s Roles

More resilient household sector

Sound & robust banking system

Avenue for existing & potential individual borrowers to enhance financial discipline: • Education • Credit counseling • Debt management

• Facilitates debt repayment efforts

• Minimizes incidence of

loan default arising from poor debt management

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Set up in 2006 by Bank Negara Malaysia (BNM) Part of financial consumer protection framework

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AKPK’s Services

Debt Management

Credit Counselling

Financial Education

- Money Sense Book/ module

- POWER! Book/module

- Use simple & plain language

- Collaborate with smart partners

One-to-one: - Advise on credit & related issues

- Assist in analyzing fin. situation & identifying options to address credit issues

- Personalized programme

- Review fin. condition & tailor solutions

- Ongoing counselling & education

SERVICES ARE FREE OF CHARGE

Credit Counselling

Who is eligible? Retail consumer

Pre-condition? Attend public briefing session

Counselling process

• Review financial/credit issues

• Devise personal budget plan

• Cash-flow management

• Post-counselling decision

• Debt management advice

Debt Management Programme (DMP)

Assistance

• Help resolving financial problems with banks/card issuers

• Tailor made solutions for credit problems

• Negotiate with lenders on borrowers’ behalf - no legal power

Qualifying Criteria for DMP • Not a bankrupt

• Positive net disposable income

• Not under advanced legal action

• Loan exposure of < RM2 million (US$0.6mil)

Central Credit Reference Information System

• Administered by Credit Bureau, BNM - Central Bank of Malaysia Act 2009

• System that collects credit information on FIs’ borrowers

• Consumer can verify accuracy of information reported in his/her credit report – effective in educating borrowers on their total loan exposure & that there is no running away from their loan obligations

• Credit report provided to individuals free of charge at BNM or via mail by submitting: credit report request form, loan declaration form, copy of identity card/passport (foreigners) and any 2 : driving licence, utility bill, bank account statement, credit card statement or EPF statement

• Child can obtain Credit Report of sick/deceased parent subject to production of appropriate supporting documents

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Guidelines on Responsible Financing

Financial Institutions Retail Consumers

• Borrowers’ affordability based on prudent debt service ratios

• Enable borrowers understand

full implication of borrowing, disclose information on:

-Total finance cost -Total repayment amount -Increase in financing rate

• Capacity to access financing

• Purposeful borrowing

• Affordability & suitability

• Be wise borrowers/spenders

• Inculcate good credit culture

- Live within means

-‘Needs’ vs. ‘Wants’

- Delay gratification

Guidelines (wef 1/1/2012) promote consistent practices in assessing consumers’ creditworthiness & ability to repay

Self Help Guide: Debt Relief Plan

Step by step guide for borrowers to negotiate restructuring /rescheduling of their loan(s)

Preparing the monthly budget

Debt repayment proposal

Formula for pro-rata payment

Sample debt repayment proposal letters: single lender, multiple lenders /full & final settlement

Debt relief flowchart

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Empowers borrowers to take control of debts

Enhances borrower’s financial:

• Knowledge

• Behaviour

• Attitude

Launched on 19 January 2011

Designed to equip young adults & potential borrowers on how to manage their debts effectively & make informed financial decisions

Targeted education programme for young adults (18-30 years old), first-time borrowers & potential borrowers, including hearing impaired

Certificate of completion

Managing Your Debts Effectively

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Programme Module

Module Key Contents

Cash Flow Management

• Smart living: identify needs and wants

• Develop personal budget & cash flow/net worth statement

• Knowing financial position & net worth

Borrowing Basics

• Common sources of personal credit & key features of credit facilities

• Key lending criteria

• Cost of borrowing & setting own debt limit

• Rights & responsibilities of a borrower

Wise Usage of Credit Card

• Different types of cards - debit, credit & charge card

• Understanding terms & conditions of credit cards

• Using credit cards wisely

• Responsibility to protect credit cards

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Programme Module

Module Key Contents

Buying a Car • Factors to consider when buying a car - affordability, maintenance expenses

• Terms & conditions of hire purchase agreement - term charges, early settlement & repossession

Buying a House

• Affordability and types of house ownership

• Understanding terms & conditions of house financing

• Understanding rights & responsibilities of a borrower

• Consequences of loan default

Managing your Debts

• Contributions to over- indebtedness & consequences

• Importance of building & maintaining good credit history

• Available advisory & redress services

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Useful for IT savvy young adults

Easy & convenient to learn money mgt

Learn at own pace & time

Lively, interactive & amusing animation

IQ games to make learning interesting

Virtual certificate of completion

As at 31/07/12 – 108,603 participants

Online Learning Portal: power.akpk.org.my

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Other Financial Education Initiatives

1. Publication of financial articles in newspapers, magazines, etc.

2. Docu-drama based on real life cases – 13 episodes

3. Website (information and educational) - Online reference/response

4. Publication of monthly E-Newsletters ReadSens

5. Financial education at work place - briefings/talks at private & public entities

6. Nationwide road shows, workshops, seminars & financial exhibitions

7. Training of Trainers with smart-partners providing trainers & participants

8. Distribution of informational booklets on banking & insurance

9. Micro blogging on finance & credit issues at www.moneypower.my

10. Personal Financial Management being offered as an elective /co-curriculum subject in 44 universities & 30 polytechnics

11. University & polytechnic students attend POWER! Programme before graduation

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Make Prudent Financial Management

a Way of Life

1 800 88 2575 www.akpk.org.my

Thank You