Sunday, February 05, 2012

Low-Cost Housing Loan: In Breach of EPF Act 1991

Both the Prime Minister and the Minister of Federal Territories tried to justify the use of RM1.5 billion from Employee Provident Fund (EPF) to provide loans for social housing yesterday after being criticised for abusing workers' retirement funds for political purposes.

Datuk Seri Najib claimed that RM1.5 billion needed was "not substantial compared to EPF funds".  He further added that "the scheme does not undermine the interests of the EPF because the value of the housing units in the market is far higher than the purchase price... If a buyer is unable to or does not repay the loan, the unit can be sold for a higher price."

Raja Nong Chik also explained that "To the EPF, this is a secured business transaction, a secured loan, it is more secured than other corporate land property which is guaranteed by a government agency — the DBKL (Kuala Lumpur City Hall)."

Firstly the Prime Minister must be castigated for having the cheek to claim that the RM1.5 billion is an insignificant amount relative to the EPF fund size. Regardless of whether it is RM1.5 million or RM1.5 billion or even RM15 billion, the EPF funds must be managed stringently and not be subjected to abuse.  Similarly whether the amount is a RM100 or a RM1 million bribe, if its a crime, being the lesser amount provides absolutely no justification.

Secondly, if the low-cost properties are so collateral-worthy, that the market price is much higher than the purchase price, then why can't these loans be made via commercial banks and not through EPF social lending programmes? If DBKL is able to provide the guarantee, and the guarantee is even "better than normal corporate property", then surely, banks will be rushing to provide the loans and not shy away from them.

The EPF on its website says that it "aims to provide financial security for its members’ retirement purposes. The fund is committed to preserving and growing the savings of its members in a prudent manner in accordance with best practices in investments and corporate conduct.”

Therefore the EPF is not a lender of the last resort for the poor and neither is it a social welfare organisation.

Finally, the social housing loan scheme is in breach of the EPF Act 1991 which regulates the fund in terms of permissible investment activities.  Under Clause 26 the Act, the EPF may lend money to Federal and State governments. It can also provide loans to and subscribe to bonds of registered corporate bodies in the country.

It may even provide loans to members of the Fund "for the purpose of purchasing or building a house". The EPF housing loan to its members is based on a proportion of the worker's contribution to the Fund.

However, no where in the Act does it say it can provide loans to individuals to acquire low-cost apartments using the property as a collateral. Despite the "guarantee" from DBKL, the loans are being made out directly to the property owners who may or may not have contributed to EPF.

We fully support measures by the Government to assist the poor to own their own properties. However such measures cannot be at the expense of abusing Malaysian workers' retirement savings as specifically outlined in the EPF Act.

The Federal Government if need be, can borrow directly from EPF as it does normally, for its social welfare programmes.  The EPF should not however be directed to provide loans directly to the general public and put itself at risk of default by the individual borrowers.

Najib who is also the Finance Minister must stop the social housing loan scheme in its current form to not only ensure compliance with the EPF Act, but more importantly, ensure that the workers' hard-earned savings will not be jeopardised in the guise of politically motivated charity.
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