First things first: Are Friendly Loan Agreements legal?
Yes, Friendly Loan Agreements are legal in Malaysia. Parties are allowed to give out loans, and even charge interest on the loan, as long as the lender is not carrying out money lending ‘like a business’. Only institutions who have the necessary licenses issued under the Moneylenders Act 1951 can carry out money lending as a business.
If you are lending money to someone, you will want to make sure you do not accidentally become an unlicensed moneylender, as that is an offense punishable under the Moneylenders Act (explained below).
How do I ensure that my loan is not given out ‘as a business”?
The Court will take into consideration factors such as: How many times the lender has lent money; Whether the interest charged on the loan is high; and What is the relationship between parties.
If it is a one-time loan with a reasonable interest rate between individuals who are friends or relatives, it is likely that the Court will consider the transaction to be a legitimate Friendly Loan Agreement that is legally valid and enforceable.
However, if the lender has given out several loans in the past, or if the interest rate being charged is high, or if the parties have no personal relationship, the Court may end up concluding that the lender is carrying out money lending as a business, which is an illegal activity if the lender does not have the necessary license. Every case is judged on its own facts, and these are just examples of factors that the Court will consider.
Can interest be charged in Friendly Loan Agreements?
Yes, interest can be charged. However, as mentioned above, the Court will consider whether the interest charged is reasonable. The higher and more unreasonable the interest is, the more likely the Court will form the view that the lender is carrying out the transaction as a money lending business, and consequently strike down the agreement and preclude the claim for interest.
What happens if the Friendly Loan Agreement is found to be an illegal money lending transaction?
If the Court determines that the lender is carrying out a money lending business without the requisite license, there are two immediate implications.
Other than the loan having to be repaid, other terms of the Friendly Loan Agreement (such as the chargeable interests and enforcement of securities) will become invalid and unenforceable once the agreement is deemed void in law.
The second implication is that the lender will be deemed to have committed an offense for carrying out an unlicensed money lending business, and will be liable under section 5 of the Moneylenders Act 1951 to a fine between RM 250,000 and RM 1 million, or to imprisonment for a term not exceeding 5 years, or to both. In the case of subsequent offenses, the person shall also be liable to whipping.
In Kuala Lumpur and Selangor has any trusted licensed moneylenders?
Actually, there are many trusted moneylenders in Kuala Lumpur and Selangor area. But don’t be 100% trusted in social media or advertisement loan companies. In social media has many loan sharks (ah long) or scammers. After you apply for a fund from them, they will ask you to pay many kinds of fees. If you really need urgent funds but don’t wanna take too long times. You can try applying from Fantastic greetings Sdn Bhd. They cover klang Valley area and their website is www.pinjamansalute.com
Business hour of Fantastic Greetings Sdn Bhd
Monday – Friday: 9.00 AM to 6 PM
Saturday: 9.00 AM to 2 PM
Try to contact Fantastic Greetings Sdn Bhd
Call or WhatsApp: 016-6736475