Credit Cards in Malaysia: a force for good??

Many people, including those in the government, think that credit cards are bad, bad, bad.

So is fire, doesn't stop you from using it, does it?

I would argue that if the rules are set properly (not arbitrarily as they are now), AND taking into account lessons learnt from Taiwan and South Korea on how to jump start your domestic economy but without most of the dire problems that can come with a consumption-led boom, then listen up:

But first, some background. There are about 11-12 million working adults in this country. Only about 4 million actually hold credit cards. What about the rest, you ask? Based on the Bank Negara guidelines, they don't qualify due to their lower income or lack of income documentation, say hawkers etc who deal in cash and don't keep proper records.

The consequence of that is that these individuals are essentially LOCKED OUT of the formal banking system, so who do they turn to when there is a need for cash - you got it, the loan sharks. Why do you think the loan sharks do so well? Because there are 8 million adults out there who need money (given the cost of living these days, emergencies or business opportunities) but can't get a loan.

Without even a credit card, how are they going to build up their credit record in CCRIS? How can they qualify to buy a car or a house later on? They have to start somewhere. Also, putting a card in their hands benefits the formal economy.

So how to go about it? Ok, let me put on my Queen Amidala costume first.. ahem..

"It pleases us to decree that hereby, in our fair land, the governances upon the usage of such devices known to us as the card of credit shall be changed upon the morrow to as follows:

1. Risk based pricing - let banks decide what level of interest rates to charge, low for low risk, high for high risk (not a flat rate of 18% or a simple 3 tier rate, it's an insult to the intelligence). Set a cap of 24% pa otherwise we'd be no better than throwing red paint at defaulters
2. Open up the eligibility to all adults, provided a source of income and/or wealth can be determined - so if you are not working but have millions in the bank generating returns, why shouldn't you get a card even if you are an 85 year old housewife? Similarly, you could be earning 1,200 per month in an honest job, why shouldn't you get a card? It's just that the rules need to be smarter and more accommodating
3. Lower income card limits - set a cap of 2x income, block the following transactions - cash advance, balance transfers, goldsmith & jewellers, internet transactions, airlines and hotels and all foreign currency transactions. Sounds harsh but this is to stop uncontrolled cash usage, pawning jewellery & gold, internet gambling and really, if you don't earn enough, you shouldn't be flying, travelling and going overseas! Keep the money circulating INSIDE the country. Until you earn more, then you can go 'over the sea', you know?. It's a privilege, not a right.
4. Mandate a zero merchant discount for small transactions say below RM50, no need to pay for reward points for these transactions
5. Provide tax incentives for merchant acquiring businesses or banks to set up terminals with even small stalls at the market, the technology is there and the cost is getting lower, why not do it? This means less physical cash floating around, more digital cash that is easily tracked and controlled. The less physical cash there is, the harder it is for crime and corruption to move money around [on a side note, there really should be something done about looking into properties being bought with cash, change the law to force a declaration on such transactions!]
6. Tightly control the approval process, no setting up a booth at a street corner and pre-approve cards to anyone breathing and has an address! (Korea, I'm looking at you... saranghaeyo)

So what would be the upshot of all these proposed changes (if I were in power! I will be stronger than the earth, brighter than the moon, all will love me and despair! paraphrasing Galadriel)?

• Give the poor some breathing space with a small amount of credit
• Let them build up a credit record that will help them move up
• Better monitoring of money flows within the economy, more money in the white economy
• Put the squeeze on crime - less dependency on the loan sharks, let them deal with the gambling addicts, let the real needy get some decent credit to buy food and stuff.
• Yeah, banks earn more hehe but it's all good, y'all.

Now.. when Tony Pua becomes Minister of Finance, wonder if he'll take this suggestion? Better 'friend' him on Facebook first hehe