Cooperative loans in Malaysia

Cooperative loans in Malaysia (commonly known in the Malay language as Pinjaman Koperasi) are credit services offered by cooperatives registered under the Cooperative Commission of Malaysia (SKM) to their members who work as civil servants. It is part of the shadow banking system in Malaysia. The borrowers are restricted to employees in government departments, statutory bodies, government-linked companies or municipal councils. The Congress of Unions of Employees in the Public and Civil Services (CUEPACS) supports these loans because they aid civil servants in overcoming financial problems and reducing borrowing from loan sharks. All matters relating to the administration of these loans are regulated under the Cooperative Society Act of 1993.

Cooperative loans in Malaysia share some common features such as:

Payment of monthly installment is via an automatic salary deduction by a government-related body called the National Cooperative Movement of Malaysia (ANGKASA). Loan size is limited to RM250,000 (maximum allowed) or to the maximum installment amount that can be deducted from the borrower’s salary. Loan installments together with other deductions cannot exceed the maximum 60% limit on salary deductions imposed by the Public Services Department. This is to ensure that the take-home pay is at least 40% of gross salary. The maximum tenure is 10 years (the maximum tenure allowable by Bank Negara Malaysia) or until retirement year, whichever comes first.

The vast majority of personal loans offered by the cooperatives are Islamic loans that comply with the Sharia guidelines set by SKM. These loans are based on Islamic banking and finance principles such as Tawarruq and Murabahah which involve the buying and selling of commodity payable by installment or deferred payment. Using the buying-selling model, interest (riba) which is forbidden (haram), is replaced by a profit margin agreed upon between the buyer and the seller. Most cooperative loans come with compulsory takaful insurance protection that covers the outstanding amount in circumstances of death or total permanent disability.

Cooperatives provide credit facilities to their members by using either their own or borrowed funds. Since cooperatives funds are limited, the operations of these loans are primarily dependent on consistent and constant funding from financial institutions. Popular commercial banks in Malaysia such as Maybank, RHB Bank, Kuwait Finance House and Bank Rakyat are currently funding or have in the past contributed funds to the cooperatives.

...
Wikipedia