1. What is moneylending? 

Pursuant to Section 2 of the Moneylenders Act 1951 (Akta Pemberi Pinjam Wang 1951 [Akta 400]), moneylending means lending money at interest, with or without security, by a moneylender to a borrower.

• Fun Fact: unlike pawn broking transactions where the Pawnbroker Act 1972 will only apply if the amount of money borrowed does not exceed RM10,000, there is no financial limit for the moneylending transaction to be governed by the Moneylenders Act 1951.

A moneylender is also defined in the same section as “moneylending” means the lending of money at interest, with or without security, by a moneylender to a borrower. Interestingly, moneylenders in Malaysia are known as “Credit Community”.

2. Which governmental regulatory body is responsible for regulating the moneylending industry in Malaysia?  

The governmental regulatory body responsible for regulating the moneylending industry and administering moneylending licenses is the Ministry of Housing and Local Government (Kementerian Perumahan dan Kerajaan Tempatan).  Do take note that Bank Negara Malaysia does not issue money lending licenses. 

In 2023, Minister of Housing and Local Government of Malaysia Nga Kor Ming stated that the Ministry of Housing and Local Government (KPKT) approves no more than 60 moneylending licence applications per year as part of a licensing control measure and to prevent the number of licenced moneylenders from running rampant.

3. What are the requirements to obtain a moneylending licence in Malaysia? 

According to the Credit Community Service Guidelines provided by KPKT, the requirements in order to obtain a moneylending licence are:

• Applicant company must be of Sdn Bhd or Bhd status;
• Minimum of RM2 Million Paid Up Capital (so as to ensure that moneylenders are financially capable of operating a moneylending business);
• Members must pass a Royal Malaysian Police screening;
• Members are not declared bankrupt or are an undischarged bankrupt; and
• Members are free of any offences involving fraud or dishonesty or an offence under the Moneylenders Act or the Anti-Money Laundering, Anti Terrorist Financing And Proceeds From Unlawful Activities Act 2001 (AMLATFPUAA).

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4. How can I operate a moneylending business in Malaysia? 

In order to operate a licensed moneylending business in Malaysia, you will first have to apply for a moneylending license by submitting an application to the iDEAL System at https://ideal.kpkt.gov.my as well as submitting all mandatory attachments and any relevant documents such as: 

1. Form 1: Entry of general information and confirmation of company registration number; 

2. Form 2: Entry of Basic Information such as registration address, operational address, coordinates; 

3. Form 3: Information on the members of Board of directors, shareholders, secretaries and other relevant documents; 

4. Latest SSM (Corporate Information) e-Info to show proof of an issued and paid-up capital of not less than RM2,000,000.00 for a new application;  

5. The statutory declaration under Schedule C of the MA 1951 of each member of Board of Directors; 

6. Copy of identity card or passport for each Board Member, director and manager of the company; 

7. A copy of the Bankruptcy and Insolvency Search results for each director or manager.

5. What is the difference between a licenced moneylender and an unlicenced moneylender? 

A legal moneylender (Community Credit) company would have a licence from KPKT and are regulated and/or subjected to a whole host of rules and laws under the Moneylenders Act 1951. On the other hand, illegal or unlicenced moneylenders are known for acting outside the law and for their high-interest loans or unethical debt collection methods. Take note that it is an offence under Section 29 of the Moneylenders Act for licenced moneylenders to harass and intimidate borrowers and his family and if a moneylender is harassing and/or intimidating you due to your unpaid debts, this would surely be a telltale sign of an unlicenced moneylender. Furthermore, Section 15 of the Moneylenders Act 1951 provides that any moneylending agreement or contract in respect of money lent by an unlicenced moneylender shall be unenforceable.

6. How do I know if a moneylender has a valid moneylending licence from authorities? 

• To distinguish legal moneylenders from illegal moneylenders, you can conduct a check on whether the moneylending company has a valid license as a moneylender (or community credit following the rebranding of licensed moneylenders in 2019) through the i-KrediKom application that was launched on 5 April 2019 and is available to download through Google Play Store or App Store.  
• It is also possible to distinguish between legal moneylenders and illegal moneylenders through their advertisements. Regulation 8 of the Moneylenders (Control and Licensing) Regulations 2003 (“MCLR 2003”) provides that every licensed moneylender’s advertisements, whether in the form of a billboard, banner, or card must contain the following details: 

1. The license number of the moneylender and the date of confirmation; 

2. Advertising permit number; 

3. The name, address, and telephone number of the licensed moneylender, and; 

4. The interest rate offered. 

(Sample Moneylending Advertisement provided by KPKT) 

Furthermore, there is a requirement under Section 5F for moneylenders to display their original license ‘in a conspicuous place at the premise where he carries out or operates his business,’ to which failure to do will result in fines of RM10,000.00 and/or up to 5 years of jail or both. In cases of subsequent offences, the offender shall also be liable to whipping. Therefore, keep a lookout for the moneylender’s original license. If it is not on display, it is a warning sign that you ought to beware of this particular moneylender.  

7. What should I take heed of before borrowing money from a licensed moneylender? 

Borrower’s rights under MA 1951: (list is not exhaustive) 

1. There is a maximum interest rate (per annum) imposed on secured loans and unsecured loans (see below). As a borrower, you must be aware that licensed moneylenders are bound by law in respect to charging interest and that the interest rate charged by the licensed moneylender should not exceed the limit imposed by the MA 1951. 

2. Pursuant to Section 16(1) of the MA 1951, borrowers also have the right to receive a copy of the moneylending agreement, which must be signed by all parties. A copy of the duly stamped moneylending agreement should also be delivered to the borrower before the money is lent, while failure to do so will render the moneylending agreement void. Pursuant to Section 16(2), the licensee ‘shall be liable to a fine not exceeding ten thousand ringgit or to imprisonment for a term not exceeding twelve months or to both’ for non-compliance with the aforesaid requirements under Section 16(1). 

3. Section 27 provides that the moneylending agreement shall be attested by a lawyer, a legal officer, a Commissioner for Oaths, or any other person authorised to attest documents (‘relevant persons’) and the attestor shall explain the terms of the moneylending agreement to the borrower, and shall certify on the agreement that the borrower appears to understand the meaning of the terms of the agreement. In other words, the attestor must explain the content and terms of the moneylending agreement to you in order to ensure your understanding of the transaction and certifies that you have understood it. 

4. Under Section 23 of the MA 1951, additional charges imposed to the borrower other than ‘stamp duties, fees payable by law and legal costs incidental to or relating to the negotiations for or the granting of the loan or proposed loan’ are illegal and may be recovered. This essentially means that other than the aforementioned costs, the moneylender cannot impose any hidden or additional charges on top of the agreed loan amount and this is to protect borrowers from being unfairly or excessively charged beyond what is legally permitted. However, non-compliance with this section will not void the moneylending agreement unlike non-compliance with Section 16. 

8. What are secured and unsecured loans? 

Secured loans, in essence, require borrowers to provide some form of collateral (ex: house, car, etc.) for the loan, whereas unsecured loans do not require any such collateral or security. For the aforementioned reasons, secured loans are generally easier to qualify compared to unsecured loans.

9. What is the interest allowed for secured and unsecured loans in Malaysia? 

Section 17A of the MA 1951 limits the maximum interest allowed for secured loans to 12% per annum and 18% per annum for unsecured loans. Do note that Section 17(1) states that compounding interest rates or increasing the rate of amount of interest when borrowers default on their repayments is illegal and the moneylending agreement may be void and unenforceable as a result.

Interestingly, Section 21(2) provides that the interest charged in respect of the sum lent must not be excessive and the transaction is harsh, unconscionable or substantially unfair.

10. What are the penalties for operating a moneylending license without a valid licence? 

Anyone convicted of operating a moneylending business or carrying out moneylending activities without a valid license or with a valid license that has expired, suspended, or revoked in contravention of Section 5(1) of the Moneylenders Act 1951 will be fined between RM 250,000.00 and RM 1,000,000.00 or imprisoned for a term not exceeding 5 years, or both. In cases of subsequent offences, the person shall also be liable to whipping in addition to the aforementioned punishment.

11. How can I file a complaint regarding violations of the Moneylenders Act 1951?

Complaints regarding any violations or breaches of the Moneylenders Act can be made to KPKT via its Public Complaint Management System at https://kpkt.spab.gov.my or in person at the Community Credit Control Division (Bahagian Kawalan Kredit Komuniti) of KPKT. 

12. How do I renew my moneylending license in Malaysia? 

The duration of the validity of a license prescribed under Section 5C is for a period not exceeding two (2) years and the relevant provision on the renewal of moneylending licenses in Malaysia is found under Section 5E, which provides that an application for the renewal of a license shall be made to the Ministry of Housing and Local Government (KPKT) by the licensee at least sixty (60) days before the date of expiry of the license and the application shall be accompanied by such documents and information as may be required by the Registrar, to which failure to renew the license before the date of expiry of the license will result in the licensee unable to make an application for a license within a period of two years from the date of expiry of the license. 

13. Is lending money to friends and family legal? 

Moneylending between individuals who are friends or relatives can be legal via Friendly Loan Agreements. Judicial guidance on the meaning of friendly loan is found in the case of  the case of Tan Aik Teck v. Tang Soon Chye [2007] 5 CLJ 441, where Mokhtar Sidin JCA states that:

“A friendly loan is opposed to the normal borrowing from a moneylender or financial institution, A friendly loan is a loan between two persons based on trust. There may be an agreement such as an I.O.U or security pledged to repayment but most important there will be no interest imposed.”

In other words, parties to such agreements can give out loans, charge interest on the lent sum or even secure the loan with a guarantee. However, do take note of Section 10OA of the Moneylenders Act 1951 which provides for a presumption that you are a moneylender if there is proof of a single loan at interest and the burden of proof to prove the contrary will lie on you as the lender.

Nevertheless, as long as the lender in Friendly Loan Agreement does not lend money as a business, he or she will not be subject to the Moneylenders Act 1951. However, do remember that these agreements are still subjected to the Contracts Act 1950, just like any other agreement. Whether the loan is given out as a business depends on several factors.

In considering whether your act of moneylending to your friends and family is of a business nature, the Courts may consider factors such as the relationship between the parties, whether the lender has lent money in the past, and whether the interest charged (if any) is unreasonably high. Such cases are to be determined based on their individual facts. For example, the Court of Appeal found that an interest of 8% per day for the loan transaction under a “Project Support Agreement” is exorbitant and wrong in Sureshraj a/l Krishnan v PV Power Engineering Sdn Bhd & Anor [2023] 1 MLJ 632. In Menta Construction Sdn. Bhd. V SPM Property & Management Sdn Bhd & Anor [2017] CLJU 675; [2017] 1 LNS 675, the High Court found that an interest rate of 8.8% per annum could not be justified for the Friendly Loan Agreement in question and exercised its discretion and grant a simple interest rate at 5% per annum. In Chandramohan a/l Narayanasamy v Ravindran a/l Maruthamuthu [2022] CLJU 2352, the defendant had asserted that the Friendly Loan Agreement was illegal and unenforceable as it involved an unlicenced moneylending transaction to which the Plaintiff was never licenced under the Moneylenders Act 1951 to conduct such business, the High Court noted that the parties were well aware that the loan without interest was a friendly loan, where the plaintiff genuinely wanted to help with the defendant’s financial troubles.   

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Conclusion 

Whether you are a borrower or moneylender, it is important for you to understand the legal rights and responsibilities involved in a moneylending transaction and the consequences of such, especially in the context of rising economic challenges during the COVID-19 pandemic and heightened costs of living. Borrowers (especially those desperate for some cash) are advised to be wary of borrowing money from illegal or unlicenced moneylending services in Malaysia as protection afforded to borrowers under the Moneylenders Act 1951 such as prohibition of the moneylender to impose compound interest and restriction in the interest rate imposed will not apply. However, one is also reminded that licenced moneylenders exist for a reason: they have been identified or approved as persons competent to run moneylending businesses by authorities.

Furthermore, the up-and-coming Consumer Credit Act (CCA) that is expected to be tabled in the Parliament in the second half of the year, aims to promote responsible practices among credit lending activities and strengthen protection for credit consumers in Malaysia by curtailing predatory practices. The Act is expected to contain major changes to the Malaysian moneylending landscape where for instance, moneylending matters that is currently under the purview of the Ministry of Housing and Local Government (KPKT) are expected to be transferred to the Consumer Credit Oversight Board (CCOB) following the enactment of the Act and that the Moneylenders Act 1951 is expected to be repealed by the Consumer Credit Act where relevant provisions of the Moneylenders Act 1951 as well as other acts such as the Pawnbrokers Act 1972 will be incorporated in the amalgamated Consumer Credit Act.

Legal Disclaimer:

Information and content contained in the article are for general information purposes only and are not intended as professional legal advice nor should you rely on any information, statements or representations made within this article or within the Ying & Partners Website as legal advice. If you have any specific queries or require any legal advice, please contact us or fill in the contact query form and we will get back to you at the earliest convenience.