Role of Islamic Social Finance in Reducing Households’ OverIndebtedness in Malaysia

Abstract

Credit market research generally focuses on business loans, while households are generally viewed as providers of funds rather than debtors. However, the household credit market transfers resources from households in temporary surplus to those in temporary deficit. Generally, young people are burdened with student loans during their studies and after graduation. Once they started working, their needs for transportation and independent housing increases, leading to more loan commitments and increasing the possibility of over-indebtedness. Some households have accumulated too much debt as they are unaware of the consequences of their own financial choices, while others have been forced into debt due to unfortunate life events. According to the literature, an excessive level of indebtedness leads households to fall into poverty. Hence, this study aims to highlight the severity of household over-indebtedness in Malaysia and to propose a model based on a crowdfunding platform combining Cashwaqf and Qard Hasan to reduce this phenomenon. This study adopts a qualitative research approach, by undertaking a metaanalysis of comprehensive secondary data obtained from reports of the relevant agency, namely the Credit Counseling and Debt Management Agency (AKPK) and literature. Several recommendations and suggestions have been put forward in efforts to raise awareness among households and encourage Islamic social finance actors to include this social issue in their development programs.