Malays make up majority of bankruptcy cases, Mdl data shows

SHAH ALAM – Malays are the primary contributors to Malaysia's highest bankruptcy rate, with 15,586 cases or 57.92 per cent of the total cases recorded between 2020 and March 2024, according to a report from the Malaysian Insolvency Department (Mdl).

This is followed by the Chinese community with 7,024 cases (26.10 per cent), other ethnicities recorded 2,182 cases (8.11 per cent), Indians accounted for 2,021 cases (7.51 per cent) and non-citizens with 95 cases (0.35 per cent).

Particularly concerning was that those aged 35 to 44 were the largest group, which made up 10,489 or 38.98 per cent of the bankruptcy cases during the same period.

Individuals aged 45 to 54 came second with 7,417 cases or 27.56 per cent, while young adults aged 25 to 34 accounted for 4,465 cases or 16.59 per cent.

For those aged 55 and above, 4,347 cases were recorded, representing 16.16 per cent of the total bankruptcies from 2020 to March 2024.

There were also 116 cases (0.43 per cent) categorised as having no available information, as the bankruptcy petitions lacked age details such as police or military identification cards.

Additionally, individuals under the age of 25 were not exempt from bankruptcy and contributed to 74 cases or 0.28 per cent.

The leading cause of bankruptcy was personal loans, accounting for 13,328 cases or 49.53 per cent of all bankruptcies from 2020 to March 2024.

This was followed by business loans, which contributed 5,018 cases (18.65 per cent) and vehicle hire purchases, responsible for 2,565 cases (9.53 per cent).

Financial Implications

An industry expert revealed that the culture and mindset of "Fear of Missing Out" (Fomo) and "You Only Live Once" (Yolo) practised in everyday life led many young people into debt addiction, thus contributing to the high bankruptcy rate in the country.

"In the past, bankruptcy debt levels were around RM50,000, but this has increased, particularly for those purchasing luxury cars valued at RM100,000 or more.

"This situation often involves young executives who fear missing out on the latest lifestyle trends, neglecting the long-term financial implications.

"With policies allowing car loans to be extended up to nine years, it is leading more young people to borrow without considering whether they can actually afford it," he said.

He added that many young people become ‘trapped’ by car loans because banks only assess their paper commitments and fail to evaluate the true ability of borrowers to repay their debts.

"When banks conduct credit assessments, they only look at an individual's payslip and overlook broader expenses, such as childcare costs, tuition fees, or other utility bills.

"Many young people may be able to afford RM1,000 per month initially. However, after five years, car maintenance costs rise and they begin to face financial difficulties," he said.

Islamic Policies

The expert also said that the high bankruptcy rate among Malays was closely tied to personal loans, which were the main cause of bankruptcy.

"This is because many Islamic personal loan policies influence the Muslim community to take out loans. For example, civil servants find it very easy to obtain personal loans due to salary deductions, which makes banks more inclined to approve their applications.

"These personal loans also create social pressure, including those who borrow just to host lavish wedding ceremonies. The root of these problems lies in policies that permit such actions," he added.

In addition to age, ethnicity and causes of bankruptcy, Mdl statistics showed that men were more significantly affected, with a total of 19,741 bankruptcy cases compared to women, who account for 7,123 cases.

Selangor recorded the highest number of bankruptcies in Malaysia, with 6,364 cases over the nearly four-year period. This was followed by the Federal Territories with 3,442 cases and Johor Bahru with 2,254 cases.

On the other hand, Perlis recorded the fewest bankruptcy cases by state, with only 161 cases from 2020 to March 2024.

The industry expert said this issue was also exacerbated by individuals owning more than one credit card, as banks only consider their ability to make the minimum monthly payments.

"Nowadays, with a salary of RM2,500, it is already possible to apply for a credit card, which poses a high risk. As someone in the industry, I have seen many young people holding five or six credit cards at once.

"If they only pay the minimum amount for all their cards and then reuse them, they will constantly find themselves trapped in a cycle of debt," he added.