The Dark Side of Malaysia’s Digital Credit Boom: BNPL and the Risk of Hyper-Inclusion

Malaysia’s household debt story has long been one of paradox. On one hand, the country boasts one of the highest household debt-to-GDP ratios in Southeast Asia, standing at 84.3% in 2025. On the other, regulators argue that loan quality has improved, repayment capacity is stronger, and financial institutions are more prudent in their lending practices. Yet beneath this veneer of stability lies a growing concern: the rapid rise of digital credit providers, particularly Buy Now, Pay Later (BNPL) schemes, which are reshaping the debt landscape in ways that could create a new underclass of digitally over-indebted consumers.

BNPL: Small in Scale, Big in Risk

At first glance, BNPL debt appears negligible. As of September 2025, outstanding BNPL balances stood at RM4.2 billion, representing just 0.3% of total household debt. Compared to the RM50.7 billion in credit card debt, BNPL looks like a minor player. But the numbers mask a deeper problem: delinquency rates in BNPL are significantly higher than traditional credit cards. Overdue BNPL loans hover around 3.5%, compared to just 1.1% for credit cards.

This disparity highlights the vulnerability of BNPL’s core demographic. Roughly 40% of BNPL transactions are made by Malaysians under 30, many of whom are gig workers or low-income earners. For these groups, BNPL offers instant access to consumption whether for gadgets, fashion, or daily essentials, without the barriers of traditional banking. But irregular income streams and limited financial literacy make repayment far more precarious. What was marketed as financial inclusion risks becoming hyper-inclusion, where easy access to credit translates into over-indebtedness.

The Digital Debt Trap

The narrative of “The Dark Side of Hyper-Inclusion” resonates strongly in Malaysia. By lowering entry barriers, BNPL and e-wallet lenders have expanded credit access to millions who were previously excluded from formal banking. Yet this democratization of credit comes at a cost. One in three new digital borrowers is now delinquent, according to Bank Negara Malaysia (BNM) data, underscoring the fragility of this new wave of borrowers.

Gig workers, in particular, embody the tension. With irregular earnings and limited access to traditional loans, they turn to BNPL and digital lenders for liquidity. But when multiple BNPL accounts are stacked together, repayment obligations quickly spiral out of control. The result is a digital debt trap, where consumers are caught between the promise of inclusion and the reality of mounting arrears.

Regulatory Response: The Consumer Credit Act

Recognizing the risks, Malaysia rolled out the Consumer Credit Act (2025), a landmark piece of legislation designed to regulate BNPL providers, e-moneylenders, and other non-bank credit players. The Act establishes the Consumer Credit Oversight Board (CCOB), tasked with enforcing transparency, fair lending practices, and standardized debt collection procedures.

For BNPL providers such as Shopee SPayLater, Grab PayLater, and Atome, the Act represents a turning point. They must now comply with stricter disclosure requirements, conduct responsible credit assessments, and adhere to codes of conduct in debt recovery. The aim is clear: to prevent BNPL from morphing into a systemic risk, while still preserving its role in expanding financial access.

A Critical Balancing Act

Malaysia’s challenge lies in striking a balance between financial inclusion and financial stability. BNPL and digital lenders undeniably fill a gap, offering credit to those underserved by banks. But the higher delinquency rates, youth concentration, and lack of transparency in provider-level debt reporting raise red flags.

If left unchecked, BNPL could exacerbate household debt stress, particularly among younger Malaysians who are already struggling with stagnant wages and rising living costs. The Consumer Credit Act is a step in the right direction, but its effectiveness will depend on rigorous enforcement and the willingness of providers to embrace responsible lending.

Conclusion

Malaysia’s digital credit boom illustrates the double-edged sword of innovation. BNPL has democratized access to credit, but it has also introduced new vulnerabilities into the financial system. The uncomfortable truth is that hyper-inclusion can quickly become over-indebtedness, and the very tools designed to empower consumers may end up trapping them in cycles of debt.

As Malaysia moves forward, the critical question is whether regulators can tame the excesses of digital lending without stifling its potential. For now, the numbers suggest that while BNPL remains small in scale, its social and financial impact is disproportionately large, a warning sign that the country cannot afford to ignore.