In an interview with Utusan Malaysia, Johari Ghani said borrowers would be burdened by interest payments charged on the loans. The scheme may also cause problems for banks as the process requires credit checks and preparation of legal agreements.
He said it would be more straightforward to allow people to withdraw their savings from the retirement fund.
Even then, Johari said, withdrawals should only be allowed for those requiring funds for emergencies such as to pay for health or education expenses.
The government has announced that EPF members would be allowed to use the savings in their Account 2 to support applications for bank loans.
This is an alternative solution to calls from the opposition and various groups for the government to permit another round of EPF withdrawals.
Johari said allowing loans would see borrowers become liable to pay a substantial amount in interest.
“So, if you take a loan of RM70,000 and pay interest, say 5% a year, that works out to RM3,500. Across 10 years, that’s RM35,000. Whereas EPF cannot guarantee you a return of 5% on your balance.
“The net amount from a borrowing of RM70,000 after deducting interest payments is RM35,000. In such a case, it would make more sense for a contributor to simply withdraw RM35,000 directly from his Account 2. He wouldn’t have to pay a sen in interest.”
Johari said it would also be difficult for banks to process loans supported by EPF savings as lending money involved credit checks and legal agreements.
Instead, allowing people to withdraw their EPF savings would spare everyone the inconvenience, he said.
The Titiwangsa MP said the previous administration’s move to allow blanket withdrawals of EPF savings during the pandemic has had serious consequences.
Firstly, the withdrawals saw EPF having to liquidate long-term investments, affecting its ability to generate returns, said Johari.
“EPF’s investment outlook is based on the long-term. It will calculate the number of members who will retire over a certain period, and liquidate accordingly”.
Johari explained that a sudden rush of withdrawals by EPF members would severely disrupt the retirement fund’s investments which would affect its future returns.
Secondly, he said, allowing those who were unaffected by the pandemic to withdraw their EPF was one of the factors that led to inflation.
“Why did we allow those who weren’t laid off or had their salary cut to withdraw their EPF funds?”
As a result, the RM145 billion withdrawn from the EPF during the Covid-19 pandemic led to an influx of money in the market and resulted in inflation. Malaysia’s inflation rate rose from 1.14% in 2020 to 3.23% in 2022 when the country lifted all Covid-19 restrictions.
The inflation was compounded by blanket loan moratoriums, Johari said.