EPF savings as bank loan support: interest to be capped between 4%, 5%

KUALA LUMPUR – Individuals who plan to get bank loans and use their Employees’ Provident Fund (EPF) savings as support are only expected to pay an interest rate of between 4% and 5% annually.  

This is according to the Finance Ministry, which expressed confidence that the initiative – known as the Account 2 Support Facility Programme – will not burden the general public. 

It also noted that the figure will be significantly lower than the rate imposed on those making personal loans. 

“The interest rate (conventional) or profit rate (Islamic) that will be imposed by banking institutions involved in the initiative are expected to be between 4% and 5% per annum. 

“This is far lower than the current market rate for personal loans, which is around 8% to 15%,” it said in a statement today, adding that the government is in the midst of finalising the initiative. 

The ministry helmed by Prime Minister Datuk Seri Anwar Ibrahim also confirmed that only funds from Account 2 will be allowed to be used as support for bank loans. 

However, it did not mention the minimum balance required to be in the account for an EPF member to qualify for the initiative. 

Previously on March 9, during his winding-up speech of the Budget 2023 at the policy stage, Anwar had said that the government would allow retirement savings in EPF to be used as security for emergency loans for EPF members in dire financial straits. 

He said this is on condition that the contributors have sufficient savings in their account, adding that the government would not allow another round of withdrawals. 

In today’s statement, the Finance Ministry reiterated this stand, explaining that the withdrawals allowed by the previous administration is owing to the financial impact of the Covid-19 pandemic then. 

Earlier today, Anwar had said that the proposal to allow EPF members to use savings as support for bank loans does not breach Section 51 of the EPF Act, and that this has been confirmed through checks with the agency and attorney-general. 

He said this method of applying for bank loans would not jeopardise the interests of EPF members because they would continue receiving dividends on the savings used as support. 

Anwar added that the risk to the EPF was also minimal as there would be returns of support in several years even if a small number of contributors defaulted on their loans. – The Vibes, March 21, 2023