PETALING JAYA: A new legislation is being formulated to protect consumers and to ensure that they are treated fairly when they borrow regardless from banks, cooperatives, money lenders or credit companies.

Currently, co-operative societies are regulated under the Co-operative Societies Act 1993 by the Malaysia Co-operative Societies Commission (SKM), which is incorporated under the Malaysia Co-operative Societies Commission Act 2007.

Bank Negara has some control over the co-operatives and non-banking financial institutions (NBFIs) via the Financial Services Act 2013 (FSA) .

The NBFIs and co-operatives are referred to as the shadow banking system.
There have been attempts to govern the co-operative movement but they have yet to succeed, probably due to political pressure.

There are some 14,000 co-operatives operating in Malaysia with a membership of 13 million. Since its inception, the co-operative movement has amassed fixed assets amounting to more than RM79bil. 

Today, 80% of the co-operatives are either defunct or have not held their AGMs. 

StarBizWeek highlighted the “syndicated loan scam” in a report recently about the state of the co-operatives.

In a written response to StarBiz, Bank Negara said consumers should be protected and treated fairly, regardless of whether the lenders are banks, cooperatives, money lenders and credit companies.

“In this regard, the bank is working together with the relevant ministries and agencies, including the Domestic Trade and Consumer Affairs Ministry, the Housing and Local Government Ministry and the Entrepreneur Development Ministry to formulate the Consumer Credit Act (CCA).

“The CCA aims to promote a healthy consumer credit market and greater household resilience, ensure fair treatment of borrowers and improve coordination of oversight arrangements,” according to the Bank Negara statement. 

Meanwhile, SKM had yet to respond to StarBiz’s e-mail queries. 

Entrepreneur and Islamic Management of Malaysia’s Association secretary Thuraisingham Shan said Bank Negara’s intention to enact a new act is laudable, but that its effectiveness might be questionable.

“Bank Negara had formulated the Essential Depositors Act in the late 80s and caused the Co-operative Central Bank (CCB) to go into receivership.”

In 1986, the co-operative movement suffered a dark period when 24 deposit taking co-operatives were placed under receivers.

CCB was investigated by Bank Negara due to management and insolvency issues. As a result of the investigation, CCB was placed under an audit firm as receiver.

Back then, the co-operatives’ crash caused a major political crisis when the government was requested to bail out risk-taking investors.

The Cabinet eventually approved a plan to reimburse the depositors of the failed co-operatives, but the co-operative sector of the economy had not recovered.

Thuraisingham questions the need for a duplication of supervisory and regulatory roles for the co-operative movement.

“What is the role of the Co-operatives Commission now in light of Bank Negara’s role? What is the task of the Entrepreneur Development Ministry now in terms of regulating and supervising the co-operatives in Malaysia?” he said. 

Thuraisingham said he is against zero supervision of the co-operatives in the country. 

“We want and need more supervision of the co-operatives. However, it must be carried out by the right agency. In developed financial systems, the role of regulating and supervising the banking, insurance and developmental finance sectors 

like the co-operatives is segregated and undertaken by specialised supervisory agencies, and not the respective central banks,” he said.

Bank Negara had signed a memorandum of understanding (MoU) with SKM in 2013, to share information on areas of common interest for the effective discharge of each other’s mandates.

The MoU encompassed cooperation in the areas of exchange of information, formulation of legislation and policies, financial inclusion initiatives, capacity building and technical cooperation, as well as the co-operative arrangements for financial stability.

“The MoU also set out the operational and assessment framework that would be applied by Bank Negara and SKM when considering an application by a co-operative society to undertake deposit-taking activity from the public, other than its own members.”