Loan Sharks

Loan sharks are illegal lending practices commonly found in Malaysia. Although they may seem like a quick solution for those in need of immediate money, such loans come with numerous risks that can ruin a person's financial stability and life. In this article, we will discuss in more detail about loan sharks, how they operate, their negative effects, and a comparison between loan sharks and licensed loans that are legal.

Characteristics of Loan Shark Operations in Malaysia

Loan sharks or illegal loans refer to money-lending activities carried out by lenders who are not licensed or recognized by the law. They are often referred to as "illegal moneylenders" or "ah long," operating without government control or legal supervision.

Channels for Loan Shark Advertisement and Spread

Loan sharks are often advertised through various channels, such as flyers, online ads, or instant loan applications. With technological advancements, they have also started using digital platforms to collect personal data from borrowers, including access to phone contacts and GPS locations. These advertisements often promise quick loans with minimal conditions, attracting desperate individuals.

However, behind these offers, they impose extremely high-interest rates, far exceeding legal loans under the Moneylenders Act of 1951. Most individuals who are desperate and in immediate need of money are tempted to borrow from them due to the fast approval process offered.

Problems of High-Interest Rates and Financial Burden

One distinguishing feature of loan sharks compared to licensed loans is the interest rates charged. Loan sharks often impose very high interest rates, which can reach up to 60% per month.

Impact of High-Interest Rates on Borrowers

To give a clearer picture, imagine borrowing RM1,000 from a loan shark with an interest rate of 50% per month. In one month, you would need to repay RM1,500 — just for one month. If you fail to repay, your debt will quickly increase as the high interest continues to be imposed month after month.

The impact of these high-interest rates is extremely burdensome for borrowers. In most cases, they become trapped in a cycle of debt that is hard to escape from. The debt continues to grow because the repayments cannot cover the interest charged.

For some individuals, loan sharks not only trap them in debt but also lead to bigger financial issues, including the inability to pay daily bills and having to sacrifice basic needs.

How Loan Sharks Collect Debt Using Violent Methods

One of the scariest aspects of loan sharks is how they collect debts. Unlike licensed lenders who follow legal procedures, loan sharks use very unethical methods, often involving violence.

Loan sharks can pose physical or emotional threats to borrowers who fail to repay. They might splash red paint on the borrower's house, disrupt their workplace, or even resort to physical violence. In some cases, borrowers may be kidnapped or forced to perform harmful actions.

Most borrowers live in constant fear, unsure how to repay without putting their safety at risk. This situation leads to serious mental stress and ongoing social problems.

Comparison Between Loan Sharks and Licensed Loans

While loan sharks may offer quick approval, they are vastly different from legally licensed loans. Licensed loans under the Ministry of Housing and Local Government (KPKT) in Malaysia are subject to stricter regulations to protect borrowers.

Advantages of Licensed Loans Under KPKT

Licensed loans differ because they are regulated by law, with lower and more reasonable interest rates. The interest rate on licensed loans is capped at 18% per year, which is approximately 1.5% per month — much lower than the 30% to 60% monthly interest rates charged by loan sharks.

Additionally, licensed loans offer more protection to borrowers, with clear and ethical debt collection procedures. You do not need to worry about violence or threats, as all processes will be carried out according to legal regulations.

Licensed loans also provide more flexible and affordable loan options for borrowers with limited financial means. Institutions such as Bank Islam, credit cooperatives, and microfinance agencies often offer loans with easier terms and controlled interest rates.

Steps to Report Loan Shark Activities

If you or someone you know becomes a victim of a loan shark, it is very important to report the activity to the authorities.

How to Report Loan Shark Activities to Authorities

Here are some steps that can be taken to report loan sharks:

• Contact the Malaysian Police: You can report the incident to the police, who have a special unit to handle loan shark cases. Keep all evidence such as threatening messages, phone call recordings, or loan documents to aid the investigation.
• Contact Bank Negara Malaysia (BNMTELELINK): BNM also provides a channel to report illegal lenders through their platform.
• Seek Help from the Credit Counseling and Debt Management Agency (AKPK): AKPK provides counseling services to help debt victims manage their finances and find legal solutions.

Conclusion: Avoiding the Dangers of Loan Sharks

Loan sharks may seem like an easy and quick solution for those who need money urgently. However, the financial and safety risks involved are very high. Unreasonably high-interest rates and aggressive debt collection methods can ruin someone's life.

As an alternative, always consider licensed loans that are safer and legal. If you must borrow, ensure you choose a licensed financial institution that provides services with fair terms and in accordance with the law.

Additionally, if you are in a financially stressed situation, do not hesitate to seek assistance from agencies such as AKPK, which can help you plan and manage debt responsibly. Healthy finances are the foundation for a more stable and secure life.

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