Speaking to FMT on the issue of small entrepreneurs taking loans from Ah Long to start their business, Abu Sofian conceded that it was difficult for these entrepreneurs to get loans from commercial banks.

The associate professor at Universiti Malaysia Kelantan’s (UMK) faculty of entrepreneurship and business said that commercial banks were less interested in dispensing small loans due to the small amount of profit, compared with Ah Long who set exorbitant interest rates.

“Another reason why banks are reluctant to dispense small loans is because many do not want to honour their repayments,” he told FMT.

Abu Sofian said the difficulty in obtaining loans was why the government needed to spearhead any effort to reduce the need for small entrepreneurs to resort to loans from Ah Long.

He said this could be done through more micro credit schemes and the setting up of more community banks.

On micro credit schemes, Abu Sofian said it would be easy for the government to set aside a few million ringgit to be disbursed through agencies.

“The issue is with the repayments. This is why the government or agencies in charge of these schemes must change their approach in collecting repayments.”

He said the interest rates for such schemes must be very low, not exceeding 2%, and the repayment amount could be broken down into smaller daily or weekly collections, rather than on a monthly basis.

This way, he said it would be easier for the borrower to pay back the loans rather than a larger lump sum at the end of each month.

He also said the government could consider giving out licences for community banks to be set up, or better yet, the government could establish a community bank itself.

“Such community banks will be better in dispensing small loans, and it will also be easier for the community banks to control and keep track of loans.

“What the community banks do may not be feasible for large commercial banks.”

Abu Sofian added that the setting up of community banks will have long-term benefits for everyone as they will not only help businesses grow, but also create employment opportunities through business expansion and create new business ventures.

All this will ultimately contribute to the economy and bring fewer social problems.