Developers as Moneylenders

Our government’s recent announcement of its plans to issue money-lending licenses to developers has been taking a lot of political flak. I’ll leave it to others to discuss on the socio-economic aspects of this silly move but I’d like to take a minute to study the legal-mathematical aspects of this.

Section 6
Sec 6 of the Act requires that the license be issued out only to individuals, partnerships, and a registered business. Money lending licenses cannot be issued out to companies. Most developers are incorporated as companies. So, if any developer wishes to take a money-lending license, they would need to use a different entity.

The trouble with not using a company is that of taxes. Any income derived from this money-lending activity will be construed as individual income and will be charged at the highest rate of 28% considering the amount of money they will be lending out.

Some developers may not like the idea of paying such an exorbitant tax rate but that’s completely up to the developers.

Section 5D
Sec 5D of the Act says that the Registrar (not the Minister) has the power to attach any number of conditions to the license granted. That’s why the Minister claims in the article that he has the power to set the maximum interest rate at 6% instead of the 12%-18% limits as stated under the Act. In actual fact, it’s the Registrar who has the power.

Section 17
Sec 17 of the Act says that interest can only be calculated in a simple interest method as compound interest is prohibited. This is something that lots of people have missed out on in their criticisms of the decision. I know that lots of lawyers are not very good with math, so I’ll try to explain it.

Simple v Compound
Simple interest is calculated linearly. What this means is that the amount of interest incurred, increases proportionally with the duration of the loan. Compound interest increases exponentially with the duration of the loan.

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I generated this plot from two different calculations, the straight line one is the simple interest at 6% and the one curving upwards is compound interest at 5%. From this plot you can see that the intersection is at around 8 years.

What this means is that if a borrower had a choice to take a bank loan at 5% or a developer loan at 6%, they would actually pay less interest to the developer than to the bank if the duration of the loan was 8 years or more.

Leverage
However, this hides a very important question – where is the developer going to get the money to lend to the borrower? Since most developers are highly leveraged, this means that they do not have the cash to hand out to the borrowers. In fact, they’re probably going to have to borrow money from the bank in order to lend it to the borrower.

Granted, the developer could probably negotiate a pretty low interest rate from the banks but the base-rate set by Bank Negara is between 3%-4.25% and they cannot go lower than that. This means that there is still an intersection, just at arond 20 years instead.

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This plot shows that the developer can make a profit from lending at 6% on a borrowing of 4% right up to around 20 years. After that, the developer actually pays more interest to the bank than the amount collected from the borrower.

Conclusion
This seems to indicate that there’s a sweet spot for these developer loans – between 8-20 years – to turn a profit for the developer and pay lesser interest for the borrower. So, from a purely legal-mathematical perspective, these developer loans do make some sense for both the developer and for the house buyer.

Caveats
There are many other financial factors not yet considered for this e.g legal fees etc. Of course, there is the whole other socio-economic aspect on how such a move may be detrimental in a country where the household debt is already really high. Also, this move will continue to drive up housing prices and will probably contribute to a property bubble. There’s also the moral hazard that is presented when the developer serves as the lender.

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Marital Rape in Malaysia

This has been a hot topic of discussion for the last couple of weeks, ever since this AWAM campaign video on rape became a sensation online. If you have not seen it yet, I would recommend that you watch it now.

The video depicts several scenarios of rape – underaged, drunk, marital, conventional. However, the only issue that became a contention in the Malaysian public sphere is the issue of marital rape. Many have weighed in on the issue on both sides with some defending marital rape as it is apparently condoned under Islam.

I was honestly taken aback when I read about the camel scenario, an opinion given by the Perak Mufti.

Even the Prophet says even when they’re riding on the back of the camel, when the husband asks her, she must give.

I was trying to wrap my mind around the fact that they were able to do it on camel back. I wonder what position that took and whether that camel was moving or stationary.

But anyway, I’m not trying to rehash the discussion on marital rape from the Islamic standpoint. Seeing that this is a quasi-legal blog, I intend to point out that under S.375 of the Penal Code, which covers rape, all the above scenarios are addressed. However, marital rape is addressed as an exception under S.375:

Exception—Sexual intercourse by a man with his own wife by a marriage which is valid under any written law for the time being in force, or is recognized in Malaysia as valid, is not rape.

Now, say what you want about it but marital rape is not recognised under Malaysian Law. Therefore, husbands are legally allowed to rape their wives as much as they want and there is no legal recourse for the wife. However, if the husband does cause any other form of bodily harm towards her in the process, she may still find redress under the Law, just not as rape.

I think that it’s a good idea to start discussing this issue because it is high time that we reformed our Law to reflect the realities of the day and that wives are no longer chattel owned by their husbands, as in the past. However, what I think a lot of the activists types are missing is that this is not a gender issue.

If the activists choose to champion it as a gender issue, they will lose. As one of my law lecturers once mentioned, nobody cares about womens’ issues in this country. I wouldn’t support their cause if they were to treat it as a gender issue simply because it would be hypocritical to do so.

Rape is not a gender issue. Rape is a human rights violation.

Since it is a human rights issue, then let’s not stop with marital rape. If you look at the wording of S.375 of the Penal Code, you will find that it also does not cover male rape either. Apparently, in Malaysia, only men are capable of committing rape and no woman is capable of doing so.

A man is said to commit “rape” who, except in the case hereinafter excepted, has sexual intercourse with a woman under circumstances falling under any of the following descriptions:

So, it would seem that our laws on rape are severely behind the times and we need to amend it to reflect the realities of the day. Rape is a crime like any other crime. It is capable of being committed by members of any gender on members of any gender. It is also capable of being committed within the confines of a home as easily as it is outside.

Therefore, it is high time that we amend our laws to recognise all kinds of rape, not just the narrow definition of  marital rape in the context of a husband raping his wife.

377A of the Penal Code

In light of the Federal Court decision in the case of Sodomy 2.0, I thought that I should take a closer look at this rarely used piece of statute. Apparently, it has only been used seven times in our history and twice on the same bloke. Lucky bastard!

Unfortunately for him, Anwar was found guilty of committing sodomy. The 54 page press summary of the full judgement has already been released to the public. That was awfully efficient of them.

According to various reports, he was charged under S.377A of the Penal Code, which says that:

Whoever voluntarily commits carnal intercourse against the order of nature shall be punished with imprisonment for a term which may extend to twenty years, and shall also be liable to whipping.

Carnal intercourse against the order of nature is conveniently defined in S.377 of the Penal Code, which says that:

Any person who has sexual connection with another person by the introduction of the penis into the anus or mouth of the other person is said to commit carnal intercourse against the order of nature.

Now, for my 2 sen on this whole issue, from a purely legal perspective devoid of political bias.

Firstly, is the dearth of Law in the summary. If you search through the PDF, you will find reference to merely five precedents. For such a high-profile case, I would have expected the judges to support their judgements with tons of Law – statutes and precedents. That is the kind of high quality judgement that I expected from our nation’s apex court chaired by the CJ, no less.

Unfortunately, we were treated to lots of trivialities, and evidential and scientific minutae instead. There was certainly a lot of commentary and opinion but not much Law. I certainly hope that the full judgement is a lot more padat than the press summary in terms of Law.

Secondly, it is my inderstanding that the Law mandates whipping for S.377A offences. I’m not sure but reports seem to indicate that Anwar will not be whipped. Judges are often given discretion when meting out pecuniary punishments but I’m not sure if they are allowed to simply ignore the clear letter of the Law in this manner.

Whoever voluntarily commits carnal intercourse against the order of nature shall be punished with imprisonment for a term which may extend to twenty years, and shall also be liable to whipping.

If they are allowed to do so, then what happens to the rest of the Penal Code where whipping is also mandated? If you search through the Penal Code, you will find that whipping is a pretty standard punishment meted out for all sorts of crimes. Does this mean that a shall means something other than what I learned in Law school?

Thirdly, I am particularly concerned with the principle that corroborative evidence is not necessary for sexual crimes. While this may be settled Law for rape, it is far from settled for sodomy particularly in Malaysia since we’ve only had so few charged in the past.

Proving rape is difficult enough as it is even with physical evidence. It often boils down to a he-said-she-said case as the critical component that separates rape from regular sex is the element of consent, which must be adduced through evidence. Otherwise, any woman can cry rape and not have to prove it in any way, which is a dangerous precedent.

However, the crime of sodomy is a strict-liability crime and is a different creature from rape simply because the act of sodomy itself is a crime, regardless of consent. Therefore, I would say that the need for corroborative evidence is even more crucial for sodomy. We cannot allow someone to simply accuse another of sodomy without any sort of evidence.

According to the summary PDF:

There was therefore no reason for him to level a false accusation against the appellant as the stigma will remain for his lifetime.

Personally, I can think of a million reasons for someone to level a false accusation against Anwar. That man has painted a bright red target on his back. Therefore, it is definitely reasonable to expect Anwar to have a lot of enemies. Hence, I think that it would be necessary to have solid and unimpeachable evidence that he committed the act of sodomy.

But I guess this principle was not considered much since there have only been so few sodomy charges in the past. Maybe, one day in the future, another sodomy case will reverse this precedent by requiring evidence of sodomy.