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I found the below image when I was conducting my research on how ANGKASA works. I'd forgotten about it until I was cleaning up my Google Drive this morning getting set for 2022 and stumbled upon it in my research folder.

It's a great visual representation of how ANGKASA salary deduction works. Essentially - on the left we have organisations that are registered to deduct from salaries. They go through an authorization process to make a claim. At this point ANGKASA checks that the claim doesn't exceed the 60% limit of the employees salary. If the claim is successful money is collected and then routed back to the organisation.

The difference with IDSB is that they are licensed with an AG Code which allows them to deduct from the salary directly at the pay master source, see "Accountant General Offices". You'll also note that IDSB can also collect from non-AG employees as well which would cover the remaining pay master sources from the list on the right in the image.



The reason for the creation of ANGKASA was to prevent fraudulent salary deductions and bad lending practices. Deducting from a government employees salary is considered highly secure so loan approval rates are very high. Without proper controls over lending many government employees were borrowing too much money as many cooperatives were using loan shark tactics. Under the governance of ANGKASA these tactics have basically been eradicated. Competition between lenders intensified and interest rates became the battleground. Rather than rates at 18% (maximum allowable under the Lending Act 2003) it's common for interest rates to be around 4.5% to 6%. This was seen as a big win for government employees.

IDSB has always been in the business of providing finance to government employees. As ANGKASA was established in the 70's and IDSB did not receive an AG Code until 2013, IDSB would have been using ANGKASA to perform salary deductions like many other organisations. I cannot say for sure whether they received an AG Code through government connections or not but I would like to point out that IDSB was formerly known as Arastu and was a subsidiary of ACMB. Arastu was founded around the same time as ANGKASA. As the company always provided lending to government employees it's possible that a long history of good lending practices may have worked in IDSBs favor in getting an AG Code. It's also worth noting that many other cooperatives provide finance to all citizens and not just government employees whereas IDSB (formerly Arastu) has always focused on lending solely to government employees.

I did a lot of research into this topic when the acquisition was announced. I'm not sure if you remember but I initially wasn't sure what to make of it. I reserved judgement until I'd done more research and I came to the conclusion that it was a good deal. Particularly once I found out that it's common for government employees to borrow right up to that allowable amount of 60% of total salary. This limit was established around 2017 because many government employees were borrowing much more than 60% and this caused issues with available cash for living expenses. As these individuals are more inclined to take on debt and have secure government salaries they are able to get credit card approval quite easily. The problem there is the interest rates on credit cards. As we see in a lot of IOU marketing, they really push the point of 0% interest. This would be very enticing to government employees in my opinion.

The only downside I found in my research was what looks to be a "sweetheart" deal that another company has with with the Accountant General Offices. Now I haven't been able to find any issuing of a license as IDSB has indicated and when I contacted the company they weren't able to provide much insight. The company I'm talking about is RCE Capital which is publicly listed in Malaysia. The company has been around since the 50's but has gone through a lot of operational changes. This company was a big player in radio for a long time holding multiple licenses in the media sector. It's transformed into a financing company and divested all licenses and radio business assets. On the company website it states that they have an alternative collection agreement for salary sacrificing which is under the purview of the Accountant General. This agreement is outside of ANGKASA and sounds a lot like an AG Code despite the fact that they aren't licensed like IDSB. As I said I was unable to gather any more info than what I've written.

As @kevin103 asked, what is to stop another connected organisation from getting an AG Code or something similar? Well, nothing really. Does it devalue the AG Code license? Imo, no it doesn't. Since Angkasa has existed they have issued one license. The agreement that RCE Capital raises some eyebrows but at the same time, any cooperative can deduct from a government employees salary through ANGKASA. The only difference is that IDSB can do it directly from the pay master source rather than route through an approval process. RCE Capital deductions are still under the discretion of the AG Office. It takes a long time to build up a reputation and client roster the way that IDSB has done. Looking at the loan book and profit before tax that IDSB has created over the last 17 years justifies the valuation that IOU has paid imo and the ability to cross sell to those valuable customers has a high probability of boosting IOU to greater heights faster than competitors. I believe this is more important than expansion at this time and obviously management feel the same way.