Co-ops heading for trouble again?

5.9 Million Members and RM38 Billion Assets in Malaysian Cooperatives

Cooperatives have been in the country since 1922. In 2006 we had about 5,000 cooperatives with 5.9 million members and total assets of RM38.3 billion. That is a lot of assets and a lot of people involved, both of which give rise to concerns about the cooperative movement.

Firstly, are the cooperatives heading for trouble again? The Malaysian cooperative movement has had a long scandalous history of mismanagement, criminal breach of trust and fraud.

We are troubled by news reports about alleged hanky panky going on in Angkatan Koperasi Kebangsaan Malaysia (ANGKASA), the country’s apex cooperative.

Also worrisome is that the Malay Officers Cooperative Credit and Investment Society (MOCCIS), one of the country’s oldest cooperatives, was found to be insolvent in 2008. Then there are the complaints that we have received against other cooperatives.

Secondly, many cooperatives are pauperising their members instead of improving their lives. Members who are mainly from the working class end up with hardly any money left after loan deductions are made from their salaries.

The problems associated with cooperatives are not new. However, the Government and many cooperatives do not seem to have learned from the lessons of their past mistakes. How bad are the problems faced by cooperatives and what needs to be done?

Trouble Brewing?

The history of cooperatives has been littered with stories of cooperatives that got into trouble and of subsequent bailouts by the Government. In the 1980s there were the scandals involving the 24 deposit- taking cooperatives and the Central Cooperative Bank. In the 1970s, it was Bank Rakyat.
In 2005, the then Deputy Entrepreneur Development and Cooperatives Minister Datuk Khamsiyah Yeop revealed that the Government had to allocate RM1 billion to bail out cooperatives in trouble (NST, 27.10.05).

Are taxpayers going to have to bail out the cooperatives again? The signs are that all is not well with the cooperative movement. For example :

— The National Rubber Smallholders Co-operative (Narsco) is said to be in debt of more than RM20 million and finding it difficult to meet its obligations. Narsco chairman had blamed the mounting debts on the previous management’s lack of accounting knowledge, questionable decisions and fluctuating rubber prices (Sun, 29.7.09).

— A hawker lodged a police report claiming that he was duped of RM20,000 by a Kuala Lumpur based cooperative which operates a seaweed planting business in Sabah. He became suspicious after the cooperative failed to pay him the guaranteed returns which was about RM5,000 every 3 months for 30 years. He invested RM25,000 and received a RM5,000 “dividend” and after that there was no more news (Star, 23.7.09).

— News reports indicate that there is hanky panky going on at Angkatan Koperasi Kebangsaan Malaysia (ANGKASA). This apex cooperative handles RM7.3 billion a year through direct deduction of salaries for loan payments.

Its former President has voiced his disappointment that investigations into the alleged misappropriation of funds involving transactions worth RM20 million a day had yet to be completed. According to him a member who applies for a RM60,000 loan only gets RM30,000 to RM40,000. He questioned where the rest of the money has gone to (Bernama, 8.1.09).

A cooperative consultant has also raised concern about the goings on in ANGKASA and questioned the legitimacy of its latest annual general meeting (Malaysiakini, 6.3.09).

— In December 2008, the Government froze the accounts of 3 cooperatives believed to have duped more than 5,000 members into investing about RM80 million in illegal get-rich-quick schemes. The 3 cooperatives were Koperasi Taqwa Malaysia Berhad (Kotaqwa), Koperasi Ushahawan Malaysia Berhad (KUMB) and Koperasi Birr Berhad (Birr). Their schemes offered lucrative returns of between 8 and 12% per month on investments. A few other cooperatives are believed to be running similar schemes. 

Members could invest as much as they wanted and were told that the cooperatives would implement projects such as cow rearing, seaweed planting, deep sea fishing and supply of consumer items (NST, 18.12.08).

l In February 2008, the Malaysian Cooperative Commission (SKM) appointed a company to take over the running of one of the country’s established cooperatives — namely the Malay Officers Cooperative Credit and Investment Society (MOCCIS) as it was technically insolvent.
l In the early 2000s, the Government quietly helped cooperatives which were badly affected by the stock market crash of 1997. The Government is said to have given RM172 million in soft loans to 7 cooperatives (2 of which were major ones) in order to help them continue as going concerns (Malaysian Business, 16.4.04).
At CAP, we have come across disturbing cases involving cooperatives :

— Cooperative members who could not withdraw their investments as the cooperatives did not have the money to pay them. 

— One member found that almost RM2, 000 of the RM9,000 loan that he applied for had been given to a company that he had no knowledge of.

— A borrower who applied for a personal loan discovered that he had ended up with a loan to purchase jewellery. 

— Members discover that they have unknowingly been made guarantors for strangers’ loans. 

An audit survey carried out by Bank Negara had revealed that the cooperatives faced problems like poor financial performance and cash flow, poor administration and not abiding by the relevant laws.

This is not surprising considering that the Cooperative Development Department (JPK) has been doing a very poor job of supervising the cooperatives. Early last year it was replaced by the Malaysian Cooperative Commission (SKM).

Pauperising Members

What is the point of having cooperatives when they only make members poorer by luring them into debt or investing in doubtful schemes?
In encouraging debt, ANGKASA plays an important role as it provides salary deductions for cooperative members to pay their loans and for other payments like monthly cooperative subscriptions. Since ANGKASA eliminates the problem of non-payment of loans, it makes members ideal borrowers for lenders.

As stated in the website of RCE Capital Bhd (whose subsidiary, RCE Marketing Sdn Bhd, provides loans to cooperatives to give to their members), “The automated repayment mode on top of the low employment turnover rates in this particular customer base provide a low-risk operating environment for RCE Marketing, thus allowing it to enjoy lower delinquency rates.”

Thus because ANGKASA is such an efficient debt collector it becomes very easy for civil servants to sign up for loans. Some take up so many that they end up with little or no income after the deductions on their salaries. In order to survive these, borrowers are than forced to turn to loan sharks.
ANGKASA gets paid by the cooperatives for carrying out the salary deductions and the cooperatives get their commission for arranging the loans.

In one case the cooperative deducted 19% of the loan approved as cost. No wonder cooperatives want their members to take up loans.

That borrowers end up with a mere pittance or no income speaks badly of ANGKASA and the cooperatives which give the loans. How come so many members could exceed the maximum 60% limit on salary deductions imposed by the Public Services Department ? Then again 60% is too high as how can a family survive if all they have is RM400 left out of the RM1,000 salary?

Apart from loans there are members who end up poorer because their cooperatives’ investment schemes failed. This raises the question of whether the cooperatives carry out any research before investing in the schemes or whether the schemes were genuine in the first place.

Tough Measures Needed to Regulate Cooperatives

If the former Cooperative Development Department (JPK) had been diligently supervising the cooperatives, then it would have been able to stop the rot in the cooperatives and protect the members.

In the 1980s, during the 24 deposit-taking cooperative scandal we had pointed out that the JPK was doing a terrible job in supervising the cooperatives. This is because at the height of the scandal it was revealed that the cooperative Koperasi Belia Bersatu Bhd (KOSATU) had been collecting deposits illegally for 10 years. How could the JPK have not known about it or done anything to stop it for 10 years?

The fact that cooperatives continue to get into financial trouble means that the JPK has not cleaned up its act. It is right that the SKM took over from JPK.

But will the SKM do a better job than the SPK? It is still too early to tell, but we fervently hope so for the cooperative members’ sake.

We had also during the 24 deposit-taking fiasco called for Bank Negara’s involvement in the overall supervision of the cooperatives. At least Bank Negara and the Finance Ministry are now part of the MCC.

Not surprisingly, there are cooperatives unhappy with the SKM and the new Securities Commission Act 2007. So much so that 2 cooperatives are suing the government (and a few others) over the Act.

The cooperatives are unhappy with Section 42 of the Act, which calls for the setting up of the Central Liquidity Fund and Section 43 which involves the setting up of the Cooperative Deposit Account.

Under the Central Liquidity Fund, the SKM may require any co-operative to contribute a certain sum to the Fund.

Under the Co-operative Deposit Account, all co-operative societies shall deposit their funds not immediately needed for operations or investments into the Cooperative Deposit Account.

Naturally some cooperatives will be unhappy about the loss of use of these funds but there is a definite need for greater control over cooperative funds to ensure that they are not being misused.

We believe that tough action needs to be taken against the cooperatives in order to protect members whose trust in their cooperatives have been abused long enough .


Many things are not right with many cooperatives and it is time that SKM acted firmly against them.

SKM must investigate the cooperatives to find out why so many of them get into trouble. If malpractices are discovered, those responsible must be brought to court.

The schemes that the cooperatives come up with must get the approval of SKM before they can be offered to their members. It is not good enough for SKM to say that it can only act against cooperatives which have gone against the Cooperative Societies Act or its Regulations. By then the members will have lost their money.

Lastly, let members who want loans get them only from the cooperative banks and not through their own cooperatives. The cooperative banks will be more professional in their dealings . It will spare the borrowers from shocks like a personal loan turning out to be a loan for a consumer product, or unexpected deductions from the loan amount. It is also likely that the loans will be cheaper as well.

History of cooperative scandals

1) ANGKASA: Alleged Fraud at Umbrella Co-op

Angkatan Koperasi Kebangsaan Malaysia (ANGKASA) commenced in 1977 as the umbrella cooperative of the country.

However it has become obvious that all is not well in ANGKASA. Its former President Royal Professor Ungku Aziz voiced his disappointment that SKM’s investigation into the alleged misappropriation of funds was still not completed in January 2009.
According to him the discovery of financial and administrative irregularities in the processing of loan applications and repayment deductions in ANGKASA were highlighted in the investigation report to SKM on 23 Oct and 18 Nov 2008.  He laments the relative lack of enthusiastic response even though about RM20 million per day is involved (Malaysian Insider 23.12.08).
He also accused some core  members of the administrative committee of collecting total allowances amounting to between RM15,000 and RM25,000 per person during the period (from 24 March to 5 May 2008) when Ungku Aziz was removed from office (Malaysian Insider 24.12. 08).
In March 2009, Thurasingham Shun, a cooperative consultant, wrote a letter to the press bringing to light the suspicious goings on in ANGKASA. He asked for  ANGKASA to  be investigated by SKM and that its board should be suspended. He further added  that a thorough investigation of ANGKASA should be carried out and its report made available to  members.
According to him, the election process at the January 2009 ANGKASA annual general meeting (AGM) was null and void because 50% of the delegates were students and teachers representing the school cooperative.  As minors below the age of 18 years the students had no legal capacity to vote or to delegate any powers to the teachers to vote on their behalf. As a result the teachers votes were invalid and therefore the whole process of the AGM was null and void.   
Amongst other things that he highlighted in his letter were:
  • A very senior official of ANGKASA who approved a contract with a company in which he himself was involved.
  • Claims had been submitted in a haphazard manner.
  • Allowances have been claimed without signature.
  • “Day use” claims and payments have been made without set guidelines.
  • The issue of Amanah Saham Angkasa, whose initial investments of RM500 million had dwindled to RM230 million, and of ANGKASA’s  attempts to write off RM5.1 million of the investment.
He claimed that what he had revealed were only the tip of the iceberg of what is going in ANGKASA.

2) The 24 Deposit-Taking Co-ops Scandal: 552,000 Depositors and RM1.5 Bil Involved

The 1986 deposit-taking cooperatives (DTCs) was a scandal waiting to happen.
A year before the scandal erupted, CAP had already written to JPK to find out the control exercised over cooperatives and the protection given to depositors should a cooperative face financial trouble or a “run”.  

CAP’s investigations disclosed  that malpractices in the cooperatives included directors using the cooperatives’ funds to buy land which they owned or controlled at above market price. Directors were also making the cooperatives buy the shares they owned in private companies at above market value. The cooperatives also gave big unsecured loans to directors, their relatives or their companies.
On 29 July 1986, CAP sent a memorandum on “The Need for Greater Control over Co-operatives” to Bank Negara Malaysia (BNM), the Ministry of Finance, Jabatan Pembangunan Koperasi (JPK), and the Ministry of National and Rural Development. The memorandum pointed out that unless the Co-operative Societies Act 1948 was amended and cooperatives activities strictly regulated, depositors may lose billions.  
However, our early warning fell on deaf ears and the scandal exploded.
The DTCs fiasco which occurred the following month involved 24 cooperatives, 522,000 depositors and about RM1.5 billion in deposits.
It was triggered off by Koperasi Belia Bersatu Berhad (KOSATU) suspending payments to depositors who wanted to withdraw their savings in July 1986. The Essential (Protection of Depositors) Regulation 1986 promugulated on 20 July 1986 allowed  BNM  to freeze the assets of KOSATU and its key management and also to investigate into the affairs of the cooperatives
Other depositors became jittery and this led to a run on other DTCs. On 8 August 1986, the activities of 23 other cooperatives were also suspended.  17 accounting firms were then appointed to assist BNM in its investigations and to come up with a White Paper.
The White Paper on the DTCs indicated that the 24 DTCs had by November 1986, together lost approximately RM673 million through mismanagement or fraud.  
The White Paper revealed that a significant number of cooperatives suffered from bad management, either due to lack of expertise or professionalism or through imprudent, and in some cases, corrupt management.
This result in gross mismanagement of funds such as overinvestment in land and property, with nearly one-fifth of assets in housing development projects and fixed assets, some of which were purchased at the height of the property market.
There was also over-commitment in loss making or non-income generating subsidiaries and related companies with as much as  42% of total assets committed in loans or capital investments in such companies. The cooperatives also suffered from speculative investments in shares.
In certain cooperatives, incidents of fraudulent activities and conflict of interest led to imprudent lending of funds, including to directors and other interested parties.
Many cooperatives did not have borrowing powers or exceeded them.  A number of them invested in assets or projects without approval of the JPK, or specifically against the approval of JPK.
In 1986, 5 directors of 3 DTCs  were charged in court, and in 1987 a further 17 directors of another 5 DTCs were also charged.

The refund to the depositors of the 24 DTCs was made possible through 3 types of rescue schemes. These rescue schemes had provided for a full ringgit-for-ringgit refund by way of cash or a combination of cash and equity.

The rescue involved RM600 million in soft loans and commercial loans from Bank Negara Malaysia. BNM also paid RM15.6 million for professional fees incurred in the investigation and  rescue exercise.
In 1988, 7 other ailing DTCs were investigated.  3 were operating in Sabah and 4 in Peninsular Malaysia.  One of the 4 in the Peninsula was the Federation  of Housing Cooperatives Ltd, in which the Cooperative Central Bank had a 78% interest.

3) MOCCIS (The Malay Officers Cooperative Credit and Investment Society): Ex-Members Need 5 Years to Recover Money

In February 2008, the Malay Officers Cooperative Credit and Investment Society (MOCCIS) was placed under the administration of Rakyat Asset Management Sdn Bhd by SKM.

This is because MOCCIS (established in 1934)  was insolvent. It could not carry out its activities and did not have enough  funds to pay workers’ salaries, and loans to members had to be stopped.  Neither  could it refund the share/fees to its members who had requested for it.
(This is no surprise as we have received  quite a number of complaints regarding MOCCIS in the early 2000s.)
Commenting on the matter, the former  Minister of Entrepreneurial Development and Cooperatives, Datuk Seri Mohamed Khaled Nordin said that MOCCIS had problem debts of RM78 million and negative cash flow liquidity problems (Utusan Malaysia 3.1.08).
But things had not been going on well with MOCCIS for some time. Members had complained that they were unable to withdraw their money from MOCCIS.
One member complained that when he could not withdraw his RM10,000 savings in 2006, he was told that he would be paid 10% of it in March 2007. However when the time came he did not get his money.
In 2006, Utusan Malaysia carried an article about the liquidity problem faced by  MOCCIS.
According to the article, MOCCIS’ problem started in 1998 when it suffered huge losses from investments undertaken in the middle of 1997.  

Among its loss-making investments were a RM10.1 million boutique hotel in Pulau Langkawi, RM2.2 million in Silicon Vision International Corp and RM1 million  in Telekom Advanced System.

On top of that MOCCIS also made downpayments (without getting any security or guarantee) to Isuta Sdn Bhd (RM13.6 million),  United Mal Jap Air Conditioning (RM3.3 million) and to an individual named BT Chan (RM1.3 million). The parties later refused to return the deposits to MOCCIS.
The article further stated that the Government had given a soft loan of RM78.2 million to settle its debts but that was not enough to cover its operation needs.
MOCCIS had also broken the law by investing in subsidiaries without the permission of the Director General of Cooperatives, made down payments to companies which were not its subsidies and carried out investments with borrowed money instead of using surplus funds (Utusan Malaysia, 18.1.06).
In February 2009, the Chairman of SKM reported that the financial situation of MOCCIS had shown improvement and that it had a positive cash flow. It had recruited new members, revived its loan scheme and it had obtained financing of RM50 million  from Bank Rakyat.
However it still owed members who had resigned arrears of RM13.4 million. They will be paid 20% of the amount owed until the whole amount is repaid.
Thus it means it will take 5 years to get the full refund.   However bonus in arrears will only be paid after fees/shares owed have been settled.

4) Bank Rakyat: Lost RM65 Mil, Malpractices by MD and Officers

By 1975, Bank Rakyat, the cooperative bank which was established in 1954, was insolvent. It had accumulated losses of RM65 million. Suspicions regarding the financial standing of the Bank were raised when at its 19th Annual General Meeting, it  tabled its 1973 and 1974 accounts, both of which did not have the prior approval of the Registrar General of Cooperatives. The 1973 and 1974 accounts showed that the Bank’s performance was profitable when  in fact the Bank suffered substantial losses for those years.

The Registrar General of Cooperatives then conducted an enquiry into the Bank and at the same time the police also investigated its affairs. Anticipating  a run on the bank, the Government came up with a guarantee that  deposits in the bank were safe.
The White Paper on Bank Rakyat revealed that  loans were approved even though they were beyond the level of the authority of the Managing Director or the committee of bank officials.  There were no minutes to indicate the loan committee had ever met and its decisions  were evident only by signature on the loan approval forms. There were instances where the applications, approvals and disbursements were made on the same day. In other instances loan disbursements were made prior to approval.
Sometimes loans were made in excess of the value of the security, and a number of loans which were approved were neither processed nor secured by any collateral. In one case, the borrowers who could not repay the loans ended up with a profit of RM180,769 because Bank Rakyat bought the two lands charged to the Bank from the borrowers.
Recovery of the loans was hampered by  the fact that most of the borrowers  were not creditworthy in the first place.  In some instances, recovery was hindered by missing loan files.
As at 31 December 1975, several members of the Board and their immediate families had loans outstanding with Bank Rakyat amounting to RM1.13 million. Out of this amount RM1.02 million were in arrears. 3 of the borrowers never made any repayment at all on their loans.
The White Paper largely attributed the malpractices to the Managing Director and certain officers of the Bank. However if the Chairman, the Board of Directors, the Registrar General of Cooperatives Societies and the external auditor had properly discharged their functions and responsibilities, they could have prevented the management from perpetuating the malpractices and thereby reduced the losses of the bank.

5) The Cooperative Central Bank (CCB): Lost RM726 Mil, Chief Executive Charged

Around the same time that the 24 DTCs were in trouble, the Cooperative Central Bank (CCB) became insolvent. Formed in 1958, CCB was a bank for other cooperatives.

As at December 1987, its members comprised of 363,483 individuals and 266 cooperative societies. It also had 157,052 depositors and total deposit liabilities of RM1.8 billion.
Preoccupied with the 24 DTC scandals the Government was initially not aware of the seriousness of CCB’s financial problems.  The actual extend of CCB’s losses were made known only when the audited accounts for the year ending 31 December 1986 were tabled in December 2007.
CCB’s audited 1986 accounts showed that it had suffered an accumulated loss of RM329 million resulting in deficit in members’ fund of RM251 million. CCB was insolvent as the funds had been completely wiped out and it was unable to repay its deposit liabilities to any extent.
In January 1988, Bank Negara assumed control of CCB to protect the interest of the depositors and to facilitate investigations into the affairs of CCB.
When CCB’s financial accounts for the year ending December 1987 were finalised it was discovered that the accumulated loss of CCB had deteriorated from RM329 million (in 1986) to RM726 million. The deficit in members’ funds also deteriorated from RM251 million in 1986 to RM652 million in 1987.
CCB could only refund 60 sen for every ringgit to each depositor.
The accumulated loss was largely attributed to gross mismanagement and the imprudent granting of large loans to a small group of borrower, many of whom were already non-performing.  Bank Negara investigations revealed that loans had been extended with inadequate security or poor security and was further compounded by a lack of proper documentation.  

To facilitate the recovery of the non-performing loans, Bank Negara froze the assets of 17 large borrowers in 2 instances on 22 December 1988 and January 1989.  

A total of 40 large borrowers were also directed to surrender their travel documents to the Immigration Department.
The Government also placed a sum of RM323 million as a standby facility in case of a run on CCB. The RM323 million facility was fully utilised to settle borrowings and to fund heavy withdrawals in 1988 and 1989.
CCB’s fall also affected housing cooperatives as they were unable to complete their housing schemes when CCB, their main financier, got into financial trouble.  
The former Chief Executive of CCB and its Assistant General Manager were jointly charged in court for 3 counts of criminal breach of trust.
In 1989 receivers took over the conduct of CCB’s business. In September 1993, the receivers were discharged and 2 persons were appointed to administer the affairs of CCB.
Subsequently in October 1994, some of the assets and liabilities of CCB were sold and transferred to PhileoAllied Bank.

Many complaints against many co-ops

1) Koperasi Wawasan Pekerja-Pekerja Malaysia Berhad (KOWAJA)

RM7,980 Deducted from Loan

A member applied for a RM80,000 loan in January 2009  but only RM33,995 was deposited into his account. He was never given a copy of the loan agreement.

When he said he wanted to return the  RM33,995 as it was not what he applied for, he was told that he would have to pay a fee of  RM2,000.  His   February 2009 salary slip revealed that RM897 had been deducted to pay for the loan.


Only after CAP had written to SKM was the mystery solved and he was given a copy of his loan. According to SKM, he  was only given  a RM42,000 loan so that  he does not exceed the 60% limit placed on deductions of salary from civil servants’ pay.

What was shocking is that he received  only RM33,995 because RM7,980 (19% of the loan) was deducted as “cost of loan”.  (Another  RM25 was deducted for KOWAJA’s fee and share.)  
Is this the fee KOWAJA earned for arranging the loan for the member with RCE Marketing Sdn Bhd?  Of course the member is unaware of the existence of RCE.  

Applied for RM5,000 Loan, Told that He Bought RM14,000 Jewellery

A member was asked to sign a blank form when he applied for a RM5, 000 loans from KOWAJA in July 2007. In August 2007, RM5, 294.51 (not RM5, 000) was credited into his bank account.  But the bigger surprise was when he received a copy of the agreement a week later.  According to the agreement, he had  not taken a personal loan but had  instead bought costume jewellery form a company called Ikhtiar Destinasi Sdn Bhd. He was asked to pay RM197.49 per month for 72 months or a total of RM14,219.28 for the jewellery.

When queried, the company explained that the member  had bought the costume jewellery and the jewellery was sold back to the supplier. The complainant will then get cash when the supplier deposits the money into the borrower’s account.

2) Koperasi Pelaburan Hartanah Berhad (KOPRAHA)      

Co-op Advertised 16% Returns, But Permit to Collect Deposits Withdrawn

This cooperative was promising   returns of 16% per annum on investments in an advertisement in the papers. Consumers called up CAP to find out whether the offer  is genuine.  

According to SKM, KOPRAHA was given permission to collect deposits from non-members under paragraph 50(e)* of the Cooperative Societies Act 1993  in August 2008.   However in December 2008, KOPRAHA’s permission to collect deposits was withdrawn as it was discovered that  it had not followed the conditions laid down under which it can collect deposit from  non-members.  

*funds of a registered society may be raised by deposit or loans from members and non-members subject to restrictions laid down in the Act and the regulations and in the by-laws of such registered society.

3) Koperasi  Belia Majujaya Malaysia Berhad      

Loss-making Co-op to Build Houses

In 1987, she placed RM3,000 in the cooperative’s housing scheme and  was promised an interest of 7% per annum.

As she had not benefited anything as a member of the cooperative, she decided to withdraw the sum (together with interest) in 2007.  The cooperative rejected her application.

Letters that CAP wrote to the cooperative were returned. SKM informed us that the cooperative’s office was closed and that it was not informed of the new address.
In its February 2009 reply to our queries, SKM stated that according to the cooperative’s latest financial report for the year ending 31 December 2005, it had suffered total loss of RM3.7 million. SKM is presently carrying out an investigation under Section 64* of the Cooperative Societies Act in order to determine the status of the cooperative.  

*Power of the Registrar General to inspect books, etc. of registered societies

4) Koperasi Perkasa Malaysia Bhd

Received Only RM5,595 Out of RM9,000 Loan

The member applied for a  personal loan of RM9,000 in 2005 but ended up receiving only  RM5,595.  

Apart from processing fee, insurance and so forth deducted from the loan he was surprised to find that RM1,845 was deducted for Syarikat Lembah Mawar, a company that  he had no knowledge of.

He settled his loan in May 2007 and the cooperative issued a letter acknowledging that he had settled the balance of RM6,525.

Therefore, he was not expecting another letter dated 4 July stating that he still owed the cooperative RM767.04.

SKM is looking into his complaint.

5) Koperasi Siswazah Bhd (KOSIS)  

Unable to Withdraw Investment

He had been a member since 1996 and after investing RM11,000, he wanted out in December 2004. To date he has yet to get his money back.

In August 2006, the JPK informed us that its investigation revealed that the cooperative was no longer active.  It was however given time to get back on its feet. Its financial situation was critical and it was burdened by many debts.  JPK was looking into whether the cooperative should be given more time to improve itself or to deregister it.

In December 2006, we were informed that the JPK had met with  the Board of Directors to  appeal against the deregistration of the cooperative.
In May 2007, the cooperative was given 1 year (ending on January 2008) to revive itself.  

In June 2008, the SKM  (having taken over the function of JPK) said that it was awaiting a report from its Federal Territory branch regarding the position of the cooperative.

In March 2009, SKM said that the cooperative’s Federal Territory branch had carried out a joint venture project planting serai in Kelantan.

Though SKM advised the  borrower to  apply to the cooperative’s board if he wished to withdraw his investment, it  did not say whether the cooperative would be able to refund the money.

6) Malay Officers Cooperative Credit and Investment Society (MOCCIS)

Made a Guarantor Unknowingly   

He had settled his loan with MOCCIS Trading Sdn Bhd (a subsidiary of MOCCIS) in January 2000.  However he later discovered that  his salary was being deducted  because he is said to have stood guarantor for 2 borrowers who have taken loans from  MOCCIS Trading .

According to him, he did not know the borrowers and neither did he sign any agreement to be guarantors for them.

Applied for RM5,600 Loan, Received RM3,200 and Told He Owed RM6,000

Another member was persuaded by his friend to apply for a loan with a finance company in 1997. He signed a blank form and later was informed that his RM3,600 loan was approved. However, he received only RM3,200.

He got a shock when he received a letter from MOCCIS Trading Sdn Bhd, saying that  he had bought RM6,000 worth of goods and his salary was being deducted to pay off the loans.  

7) Koperasi Al-Hilal Malaysia Bhd (KOHILAL)  

No Refund, Co-op Has No Money

In 1990 he joined the cooperative and RM23 was deducted monthly from his salary. In 2006 he decided to terminate his membership.

In November 2006 the cooperative replied that his application for termination had been approved but it could only come into effect 1 year after the application was approved.  

However, not only did he not get back his money  a year later in November 2007,  monthly salary deductions to the cooperative continued to be carried out.

In April 2009, SKM replied that the member had contributions worth RM3,514.38 in KOHILAL but the cooperative simply did not have the money for the refund.  SKM managed to stop his salary deductions with effect from May 2008.

KOHILAL, as it turned out, was investigated by JPK in 2005 under Section 64 of the Act. Its investigation revealed that the cooperative was having serious financial problems. This led to further investigations and as a result, its Board of Directors was dissolved and the cooperative was placed under an Administrator.

24% interest rate for co-op loan

Cooperative members may find it easy to get loans but these loans can be very expensive.  For one cooperative member, the interest rate is as high as 24% per annum.  

The loan is expensive because the cooperative deducts “cost of loan 19% from the principal”.

Members who sign up know very little about what they are getting themselves into. Not only do they sign blank forms but they also do not even have a copy of the agreement.

In one case, a member applied for a RM80,000 loan by signing a blank form. No explanation was given as to why the sum that he eventually received was only RM33,995. He was also not given a copy of the loan agreement.  

After the matter was brought up with the Malaysian Cooperatives Commission (SKM), we received a reply giving details of the loan and a copy of the loan agreement.

Based on the table, the loan amount is RM42,000. The interest rate is 10% p.a. and when calculated on the principal of RM42,000, the total interest to be paid  is RM29,400.  

When interest for the tenure of the loan is calculated based on the original sum borrowed, it means that the borrower is partly paying interest for money that he has already repaid.   Since instalment is paid every month, interest should only be charged on the monthly reducing balance.

Taking into consideration that the interest to be paid on a RM42,000 loan is RM29,400 then the real interest rate is 17% per annum.

However the interest rate actually paid by the borrower increases because of the 19%  deducted from  the loan. Thus the borrower only gets  RM33,995.

When the borrower pays interest of RM29,400 on a RM33,995 the real interest on his loan jumps to 24% per annum.  

What was the 19% deduction? If it is commission for the cooperative then it  is extremely high  and   that could be the reason why the cooperatives encourage their members to take up loans.  

The cooperative may argue that the commission goes to the cooperative and ultimately (in theory) it goes back to its members.   However, the high interest rate is an unnecessary burden on the borrower.  

To protect members the SKM should see to it  that the cooperatives charge only a nominal sum for  arranging loans.

Details of the Loan of RM42,000

Monthly instalment     RM850  (84 months)

Loan amount      RM71,400

Principal      RM42,000

Interest rate       RM 29,400  (RM 42,000 x 10% x 7 years)

Deduct cost of loan 19% from the principal        RM7,980

Deduct (fee RM5 + share RM20)     RM25

Total cash received by borrower     RM33,995