Ah long and their dramas

Based on the article by the magazine 'Malaysian Business' written by Wilson Henry,

“The Malaysian loan shark or Ah Longs are the easy resource to turn to when there is a financial emergency. Faster than banks and less of a hassle, they appear to be a timely succor. So how come they have such a bad rap?”

            It is shown that there has been a drastic increase in the numbers of the loan sharks or better known in Malaysia as Ah Longs. How did this happen and what have caused it? As we all know, if there is no demand in this sector, there would definitely be no supply in it as it would not be sought after by customers or consumers. However with the alarming rate of the numbers of Ah Longs and the amount of debts that people owe, it seems that this method of obtaining immediate money is gaining popularity among the people. People are gradually resorting to borrowing money from Ah Longs instead of legal money-lenders or approved financial institutions.

            According to Henry, people who need immediate financial help are usually the easy target for the loan sharks. This is because they do not meet the requirements for bank loans and they are in a very critical position so they do not mind paying the impractical interest rate which is about 10% a month. Base on this observation, it is very clear that there exist a shortage of loans from the approved financial institutions because although they are willing and able to service the loan but there is no availability of it so the demand of loan is more than the supply of loans. Due to this shortage, loan sharks see this as an advantage and will tend to increase the interest because of the unsatisfied consumers (potential borrowers) that have nowhere to turn to for financial needs. Subsequently, people are more willing to service the loan at a higher price which is about 10% or more.

            Some of the factors that will further encourage the business of the loan sharks are the income of the borrowers. When the income of the borrowers increases, they will repay the loan in a timely manner. However if the income of the borrowers decreases, they will end up defaulting the loan. Conversely, if the income of the people is low, the demand for financial loans will increase and if the income of the people is high, the demand for financial loans will decrease as they would have enough to sustain their life or business. The second factor is the expected future income. This usually applies for the small and medium enterprises (SMEs) that expect that the contract that they are going after will be approved and through that contract they can earn a lot more than the cost of it. With this in mind, they do not mind getting the loan or going into credit terms from the loan sharks even with a high interest because they think that the profit will be higher than the cost of getting that loan. The third factor is the population. According to Parkin (2012), the demand of the goods and services correspond to the size of the population. Therefore if the population increases, the demand for financial assistance will also increase as the banks cannot cater to a mass amount of people who do not necessarily wants to pay back.

    As a result from the increasing demand in financial assistance, the quantities of Ah Longs have also increased. As we all know, the interest of the loan from the loan sharks is higher than banks and other legal money-lenders so the law of supply applies. According to the law of supply, “the higher the price of good, the greater is the quantity supplied” which means that since the yield of the illegal loan is higher so more people will choose to provide more of this Ah Longs’ service because they can gain more profit which covers the marginal cost entirely.  Nevertheless, with this comes problem on the Ah Longs’ side too because as their borrowers borrow too much and cannot pay back, they tend to default payment and flee. Therefore, the crime rates in that certain area will increase because they will pressure the borrower in anyhow to retrieve their payments including terrorizing the borrower’s loved ones.

            On the other hand, as the loan sharks continue to impose higher and higher interest rates, the people will come to a conclusion that they will not tolerate borrowing from the loan sharks anymore and will resort to other methods to get the financial aid such as from their close friends or family. If this situation continues, a surplus of loan sharks will exist. Furthermore, this will drive the loan sharks into desperation and they might start to offer lower interest rates. Similarly, if the banks offer enough loans or aids for the people, there will be less people taking loans from the loan sharks. This is because who in their right minds will put themselves and their loved ones in risk. For that reason, there is a possibility that the loan sharks will lower the interest rates so that people will be willing and able to loan from them at the right price or the equilibrium price.

            Some of the ways to counter this problem is to increase the campaigns to raise awareness so that people will stop borrowing from loan sharks. Through this campaign, people will be exposed with the effects of borrowing from loan sharks and what they can do if they have already fallen into the loan sharks’ trap.  In addition, the campaigns will also educate the people on how to handle their financial, where to get the appropriate loan from, what are the proper procedures to the loan and their rights on it. As a result, there will definitely be a fall in the demand of loan sharks as people now know there is a better solution than taking up a loan from the Ah Longs. Consequently, supply will also decrease.

Penulis : angelina_liaw ~ Sebuah blog yang menyediakan berbagai macam informasi

Artikel Ah long and their dramas ini dipublish oleh angelina_liaw pada hari Wednesday, October 24, 2012. Semoga artikel ini dapat bermanfaat.Terimakasih atas kunjungan Anda silahkan tinggalkan komentar.sudah ada 8 komentar: di postingan Ah long and their dramas