Base Lending Rate (BLR)

A minimum interest rate calculated by financial institutions based on a formula which takes into account the institutions' cost of funds and other administrative costs.

Did you heard before about BLR. Are you familiar with this term already? Actually, as a banker, BLR is the most important thing. BLR means "Base Lending Rate". Which means, BLR is refers to the current rate for each loan within period of time. BLR is always referred to the monetary policy that applies in the country. Bank Negara Malaysia (BNM) is the central bank in the Malaysia that control all of the bank in this country.

For example, if BNM want to ensure that all of the income in the household to many to saving, so BNM will increase the interest rate. It will ensure to the household decrease their expenditure and try to decrease the inflation.

As an their effect from the increasing of interest rate, all of the interest rate for all level of loan will be increase also. Scenarios that happen in the Malaysia, the rate of BLR will be different with one bank to other bank.

What other effect to the current lenders? For every lender, the changing or increasing in BLR will increase the monthly payment that they need to made. For example, let’s say before the BLR change, the installment payments that need to pay for Iswara 1.3 car is RM500.50, the increasing in BLR will caused the increase in monthly installment to RM550 or RM600 depend on how much percentage increase in BLR.

In Islam, BLR is prohibited because the transaction involve directly with riba such what I’m explained in previous post that are the increase in payback from the principal amount.

Alternatively, all of the current lenders are encourage transforming to Islamic banking system because its offer fixed rate which never make lenders loss.