Anwar plays down risk in borrowing from banks with EPF as collateral

Prime Minister Anwar Ibrahim today played down the risk for those who use their Employees Provident Fund (EPF) savings as collateral to apply for personal loans from commercial banks, saying defaulters will not be overly affected.

He said dividends would still be paid on the sum placed as collateral, adding that this would make up for any losses in the event that the loan goes into default.

"As such, according to the EPF, there will be returns. So if there are a small number who default on payments, there will not be any serious effect, because the principal amount and dividends have already been added.

"So the risk, in my understanding, is minimal," he said in response to a question from PN's Sungai Besar MP Muslimin Yahaya.

Anwar had attracted criticism from some over a proposal for EPF savings to be used as collateral for banks in applying for personal loans.

The proposal was made in the face of mounting pressure for targeted withdrawals from the retirement fund, which comes under jurisdiction of the finance ministry he heads. 

It was panned by many, including economists who questioned its viability as a solution to the rising costs.  

Speaking today, Anwar added that the proposal does not breach the Employees Provident Fund Act as he had already consulted the attorney-general about the matter.

He said EPF members could apply for loans using Islamic banking "with the lowest interest rate which is certainly lower than the market loan rate".

Reiterating the government's stance against any further withdrawals from the EPF, Anwar said there were other ways to help those in need of financial assistance.

"Don't think of EPF as the only way to overcome their financial problems," he said.