The Formula That Followed Borrowers Home

KOPITALK WITH MHO

As Malaysia abolishes the Rule of 78, Brunei may need to ask what became of the people who were trapped before banking rules became clearer.

By Malai Hassan Othman

Not long ago, a short video made its rounds in one of the WhatsApp chat groups that most Bruneians belong to. It explained something called the Rule of 78. A lending formula. Most people scrolling past it would not have stopped.

But many did. And many forwarded it.

That is usually how you know something has touched a nerve.

The video was about Malaysia. About changes coming to how hire-purchase loans are calculated. About a formula that allocates more interest at the beginning of a loan — quietly, mathematically, in ways most borrowers never notice until the day they try to settle early. About why Malaysia had decided this was no longer acceptable.

But the people forwarding it were in Brunei.

I watched it, and I found myself asking a question the video did not answer. Not about Malaysia. About here. About whether that formula, or something close to it, had ever sat inside the loan agreements that many Bruneians signed without fully understanding what they were agreeing to. And about what happened to those who discovered the answer too late.

From 1 June 2026, Malaysia’s hire-purchase financing system will begin moving away from the Rule of 78 and flat-rate calculation. New hire-purchase financing will move towards the reducing balance method, with the Effective Interest Rate clearly stated to show the real cost of borrowing.

For many people, this may sound technical.

It is not.

It is about money. It is about fairness. It is about what happens when a borrower thinks he is reducing his debt, only to discover that the loan calculation has allocated a large share of the interest upfront.

In plain language, the Rule of 78 front-loads interest. The monthly instalment may look equal from the outside, but inside the calculation, a disproportionate share of the interest is allocated during the early months. That may matter little to someone who pays faithfully until the final instalment.

The pain comes when a borrower wants to settle early.

He may think: I have paid for three years. Surely I have reduced a good portion of my debt. Under a front-loaded system, the answer can be sobering. Much of what he paid may have gone to interest, not principal. The outstanding balance remains higher than expected. Early settlement does not feel like a reward for discipline. It feels like a penalty for trying.

That is why Malaysia’s reform matters beyond Malaysia.

It gives Brunei a reason to look back.

Not because Brunei is in the same position today. Brunei has since built a much stronger financial regulatory framework. There is the Brunei Darussalam Central Bank. There are Effective Interest Rate and Annualised Profit Rate disclosures. There is a Total Debt Service Ratio framework. There are limits on unsecured personal credit. There is a stronger Islamic finance sector. There are clearer rules than before.

But this is where the harder question begins.

When the rules improve, what happens to those who were trapped before the rules improved?

For many Bruneians — especially those who borrowed during the older era of easy credit, flat-rate lending, salary-assigned loans and aggressive credit card culture — the question is not academic.

Some people are still living with the consequences.

Some lost their financial standing. Some became bankrupt. Some were blacklisted. Some may have found their access to financing restricted. Some had salaries or pensions deducted for years. Some carried silent shame inside their families. Some children grew up inside households where every month began not with planning, but with deduction.

This is the human side of banking mathematics.

A formula may look clean on paper. But when it enters a household, it can decide whether a family breathes or suffocates.

Brunei’s current Hire-Purchase Act contains a statutory rebate formula for early completion of a hire-purchase agreement. The formula is based on the sum of whole numbers over the remaining months and total months of the agreement — in simple terms, belonging to the same mathematical family as the sum-of-digits approach associated with the Rule of 78.

That does not automatically mean the current law is abusive. It does not mean every present financing contract is unfair. The law gives the hirer certain rights. It requires written statements. It requires disclosure of key information. It allows early completion by paying the net balance after deducting statutory rebates.

But it does raise a legitimate public-interest question.

If Malaysia has decided that the Rule of 78 and flat-rate hire-purchase structure should be abolished for the sake of fairness and transparency, should Brunei also review whether its own statutory rebate mechanism remains suitable for today’s consumer protection standards?

This is not an attack on banks.

It is a policy question. It is also a justice question.

Because the old borrowing culture in Brunei cannot be separated from the country’s bankruptcy history.

According to figures cited in the Chief Justice’s speech at the Opening of the Legal Year 2023, bankruptcy notices filed at the commencement of proceedings rose from 260 in 2021 to 348 in 2022. Rescission orders to discharge debtors also increased, from 146 in 2021 to 219 in 2022. Creditors’ meetings rose from 3,074 to 3,587 in the same period. From January to October 2022 alone, payments of composition and dividends were declared in 438 cases, totalling more than BND22.8 million.

Those are not small numbers.

Other reported court statistics showed 243 receiving orders and 51 adjudication orders in 2021, compared with 235 receiving orders and 118 adjudication orders in 2022. Bankruptcy notices stood at 344 in 2023 and 350 in 2024. In 2025, reported bankruptcy and insolvency notices decreased to 289, but 293 receiving orders were still made, with three adjudication orders filed.

These figures do not prove that the Rule of 78 caused the bankruptcies. That would be too simplistic and unfair.

People fall into bankruptcy for many reasons. Business failure. Job loss. Over-borrowing. Poor financial discipline. Medical hardship. Family obligations. Failed guarantees. Credit card misuse. Economic slowdown. Sometimes, simply bad luck.

But the figures show something important.

Bankruptcy is not a marginal issue in Brunei. It is a living issue.

And if even a portion of those cases came from older lending practices — front-loaded interest, refinancing traps, salary-assigned borrowing, unclear early settlement calculations — then Brunei has a moral and policy reason to ask deeper questions.

How many bankrupts were originally trapped by consumer debt — old car loans, personal loans or credit cards?

How many were civil servants or pensioners, people who entered the system with steady incomes and still could not get out?

How many paid for years without ever clearly understanding how their outstanding balance was being calculated?

And how many are still carrying that weight today, from an older lending environment that Brunei has since tightened?

This is where the country needs more than general statements about financial literacy.

Financial literacy matters. Borrowers must act responsibly, live within their means and understand what they sign.

But fairness cannot be placed only on the borrower.

If a borrower does not understand the formula, while the lender understands it fully, the relationship is already unequal. If the product is marketed using a flat rate that looks small while the true cost is higher, the disclosure may be technically present but morally weak. If early settlement does not give a borrower a fair reduction, the system may be rewarding debt continuation more than debt discipline.

And if old debts continue to follow people into retirement, the question becomes even more serious.

A bankrupt person is not just a legal file. He is a father, mother, husband, wife, son or daughter. He may be a former civil servant. He may be a retired worker. He may be someone who made one bad financial decision decades ago and never fully escaped from it.

In Brunei, where shame often silences families, many do not speak openly about bankruptcy. They suffer quietly. Their names may be searched. Their access to credit may be restricted. Their financial dignity may be reduced to a record.

Some may have paid far more than they originally borrowed. Others may still not know whether the debt, charges, interest, legal costs and deductions were properly explained to them — or what rights they have to review, rescind, discharge or regularise their status.

This is why the issue deserves investigation.

Not to embarrass banks, accuse regulators or blame the courts, but to understand whether an old system created a long shadow that may still darken the lives of ordinary Bruneians.

Malaysia’s reform gives Brunei a timely opportunity to review its own framework in three areas.

The statutory rebate formula under the Hire-Purchase Act should be examined openly. If it remains fair by modern standards, explain it clearly to the public. If it is outdated, review it.

The government and relevant agencies should consider publishing clearer bankruptcy data — not merely total notices and receiving orders, but categories of debt where possible: consumer loans, hire-purchase, credit cards, business debt, guarantees. Without this breakdown, the country cannot fully understand what kind of debt is damaging households.

There should be a humane review pathway for legacy borrowers. Not a blanket debt forgiveness scheme. Not a reward for reckless borrowing. But a structured review for old cases where a borrower has paid for many years, where the original debt has become unclear, or where continued bankruptcy may no longer serve any clear public purpose.

A modern economy should not keep people permanently outside the financial system if there is a fair and responsible way to bring them back.

Brunei has done many things right in recent years. The TDSR framework helped prevent over-borrowing. Limits on unsecured personal credit reduced the risk of reckless lending. EIR and APR disclosures made borrowing more transparent. Islamic finance shifted much of the market away from conventional interest-based structures.

But reform should not only protect future borrowers.

It should also account for those caught under the older system.

Because public trust is not built only by saying the system is better now. Public trust is built when a country is willing to look honestly at the damage done before the system became better.

The Rule of 78 is not just a formula.

It is a reminder that numbers can be legal but still feel unfair. They can be disclosed but still not understood. They can be written into contracts but still leave ordinary people powerless.

Malaysia has decided to move on from it.

Brunei may have moved earlier in many areas of banking regulation. But the bigger question is not whether Brunei has moved on.

The bigger question is whether everyone was allowed to move on.

For those still carrying old debts, old bankruptcy records, old shame and old deductions, the past is not past.

It still arrives every month.

And that is why this issue deserves to be opened — carefully, fairly and honestly.

A country can modernise its rules faster than it heals the people who were hurt before the rules changed.

That may be the real story behind the Rule of 78.

Not the mathematics.

The memory.

— Malai Hassan Othman writes KopiTalk with MHO, published on Substack and LinkedIn.