Today's grads create their own jobs

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By Hannah Seligson (China Daily)
Updated: 2010-12-19 08:47

Successful young start-ups with no offices, addresses or expertise.

Five years ago, after graduating from college with a film degree and thousands of dollars in student loans, Scott Gerber moved back in with his parents in New York City. He then took out more loans to start a new-media and technology company, but it went broke in 2006.

"It made me feel demoralized and humiliated," he says.

So Mr. Gerber considered his career options. Using his last $700, he started another company.

With Sizzle It, Mr. Gerber vowed to find a niche, reduce overhead and generally be more frugal. The company, which specializes in short promotional videos, was profitable the first year, he says.

Mr. Gerber, now 27, isn't a millionaire, but he has paid off his loans and rents his own apartment. In October, he started the Young Entrepreneur Council "to create a shift from a résumé-driven society to one where people create their own jobs," he says. "The jobs are going to come from the entrepreneurial level.

The council consists of 80-plus business owners across America, ages 17 to 33. Members include Scott Becker, 23, co-founder of Invite Media, an advertising technology firm recently acquired by a Google unit; and Aaron Patzer, the 30-year-old who sold Mint.com to Intuit for $170 million.

The council serves as a help desk and mentoring hotline for individual entrepreneurs. Each month a group of council members will answer 30 to 40 of their questions in business publications like The Wall Street Journal and American Express Open Forum, and on dozens of small business Web sites.

Council members assert that young people can start businesses even if they have little or no money or experience. But roughly half of all new businesses fail within the first five years, according to United States federal data. And the entrepreneurial life is notoriously filled with risks, stresses and sacrifices.

But American unemployment is at 9.8 percent. According to the National Association of Colleges and Employers, only 24.4 percent of 2010 graduates who applied for a job had one waiting for them after graduation (up from 19.7 percent in 2009). The lesson may be that entrepreneurship can be a viable career path, not a renegade choice.

"It's not a pure dichotomy anymore that entrepreneurship is risky and other jobs are safe, so why not do what I love?" says Windsor Hanger, 22, who co-founded HerCampus.com, an online magazine.

Thanks to the Internet, there are fewer upfront costs for entrepreneurs, who can build a Web site, host conference calls, create slide presentations, and host live meetings and Web seminars - all with very little capital.

For $300 a year, Mr. Gerber rented an address from ManhattanVirtual­Office.com, which forwards mail from a recognizable address. He says it saved him $100,000 in rent and gave Sizzle It credibility; his clients now include Procter & Gamble and the Gap. He does most of his work at home and in coffee shops and shared work spaces.

Open-source software can reduce or eliminate the need for tech support.

"All you need today is a laptop, patience and willingness," says Shama Kabani, 25, a council member and founder of Marketing Zen, a digital marketing firm in Dallas, Texas, with yearly revenue in the seven figures. Ms. Kabani hired all of her 24 employees online; 15 are in the Philippines. "I've never met any of them," she says.

But start-ups do need some financing. So Mr. Gerber, whose message is "No one will give you money," is also starting the Gen Y Fund, from which young entrepreneurs can seek funding.

The goal is not to find the next Facebook or sexy Web start-up, he says; instead, it will look for practicable, marketable business ideas. In fact, a favorite phrase of his is "boring is better.

Mr. Gerber has never taken a business or economics class. "I e-mailed people in my circle and figured who knew what I needed to know," he said.

Lack of experience can be an asset. When Ms. Kabani started Marketing Zen, she tried to hide her age. "Then one of my clients told me he hired me because I was 23. He wanted someone who spoke digital as a first language.

Ms. Hanger says being young helps attract advertisers like New Balance and Juicy Couture to HerCampus.com, which recently started turning a profit.

For many of these entrepreneurs, success didn't happen overnight. It took Eric Bahn, 29, another council member, several years to get his company, BeatTheGMAT.com, a community for business school applicants, off the ground. Now it generates close to seven figures in revenue.

Ben Brinckerhoff, 28, started Devver.net, an online tool to test computer software in 2008. It folded last spring.

"There are very real cons to starting a company," he said. "It can hurt your ego, and financially it's a big hit.

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The perils of the American dream

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HOUSING INVESTMENTS
By THEAN LEE CHENG

THERE was this tagline The American Dream is truly attainable! in a local newspaper advertisement marketing US properties.

The advertisement highlighted earning an annual rental income with a three-bedroom detached house of up to 20%, which in Malaysia, would be considered a bungalow.

The nice house and attractive proposition aside, is that American dream really attainable? And if it is, is it sustainable?

If it were, the US government would not need to pump nearly US$1 trillion into the economy and neither would US President Barrack Obama speak to CEOs to seek their help to ease unemployment which is running at more than 9%.

Malaysia's unemployment rate is 3.2%, which is technically considered as full employment. But this piece is not about the American economy, or the Malaysian economy.

It's about the pursuit of the American dream which Hollywood and savvy marketing have enticed us with over the years. That American dream constitues a nice house in a middle class neighbourhood, sons who drive to college, daughters who are trendily dressed in class.

They take annual holidays and are up to date with the latest trends and lifestyle. They go after the latest gadgets that technology has spawned. Sounds familiar? But that lifestyle has also incurred high household debts which in some cases has resulted in foreclosures in the United States.

The situation in United States today is due to choices made years ago. It did not begin with Lehman Brothers fall in 2008, it started way before because of materialism and consumerism.

The Americans have been so good at marketing and advertising, they have made consumerism and marketing into an art and the Americans bought into it.

They are selling that same dream to Asia and other parts of the world just as they have very successfully sold us the various gadgets that technology has spawn.

Out of a population of 28 million, Malaysia has a working class of 12.5 million, of which two million are foreign workers. Of the remaining 10.5 million, 1.5 million are in the public sector.

Only 5.5 million are formally employed in the private sector. The remaining 3.5 million are making a living as traders.

Of late, the authorities and the press have been talking about being in the middle income trap. The middle income group has a monthly salary of between RM2,000 and RM10,000.

Most of us belong to this group whose profile is a house, or several houses, in the Klang Valley and the major towns of Malaysia, with school going children in private or overseas schools and universities. It also includes young graduates who earn slightly less than RM2,000 but who within a short time, move from lower income bracket to the lower middle income group.

This middle income group comprises about half of the 12.5 million working population, who are in a way pursuing that American or Malaysian dream.

The resulting trend is that house buyers no longer seek to buy a house, but to buy a lifestyle.

And developers prefer to build lifestyle homes, because the margin is greater. Lifestyle housing also gives them the added edge of branding themselves.

If it is an apartment, the bigger the better. Buying a house is no longer enough, one has to buy a lifestyle house with designer fittings and sanitary ware.

Education for the children is a premium. Technologically advanced gadgets and branded attire completes the picture.

In short, technically we are geographically in a different location but the people and that American dream remains the same.

Some 30 to 40 years ago, the manufacturing sector was the mainstay of the American economy. It now accounts for 12% of US jobs. Today, services, creation and innovation accounts for a large chunk of it.

In Malaysia, manufacturing used to account for about 35% of gross domestic product (GDP). Manufacturers used to be the largest employers.

Today, contribution from that sector has dropped to 29% of GDP, giving employment to a third of the 5.5 million private sector salaried workers.

The service sector is expected to be the largest employer this year, constituting more than half of the total employment, followed by manufacturing.

For years, the problem in the United States was hidden by cheap debt. We have that today in Malaysia. Banks are pushing attractive mortgage terms. Another way to finance that lifestyle is to leach from the Employees' Provident Fund to finance home mortgages, children's overseas education and private investments in unit trust.

And so the baby boomers (those born in the the 1950s and 1960s) have to postpone their retirement because banks are now approving loans up to the age of 65 or 70.

Easy debt has become a millstone in latter years. Come 2011, house buyers who purchased properties with the 5/95 scheme and variations of it, will be getting the keys to their properties. They paid a downpayment of only 5% of their property price in the first quarter of 2009.

They will now have to cough out the other 95%. Americans are slowly relinquishing that American dream. We are aspiring towards it. Is the American or Malaysian dream sustainable? Food for thought.

Like other middle class wage earner, assistant news editor Thean Lee Cheng is herself a victim of the American dream.

Good year for Malaysia stock market

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By YVONNE TAN
yvonne@thestar.com.my

It has been a good run for the stock market this year with the key benchmark index reaching a record high of 1,528 points on Nov 10.

Year-to-date, the FBM KLCI has yielded a return of about 29% in US dollar terms (18% for the index alone), outperforming the Dow Jones Industrial Average and some Asian markets including Japan, Hong Kong and Singapore.

“It has been another good year for Bursa even after a strong rebound in 2009,” says Danny Wong, chief executive officer at Areca Capital Sdn Bhd

Bursa Malaysia emerged as the fourth best performing Asian market in US dollar terms, while in local currency terms, the market ranked fifth in Asia.

“Compared to the start of the year when most market watchers were predicting the local index to close somewhere between 1,350 and1,450 points, the closing market level for 2010 (1,509.10 as at Dec 15) is definitely better than expected,” says Pankaj Kumar, chief investment officer at Kurnia Insurance (M) Bhd.

For foreign fund managers, the market’s gain of close to 18% this year was on top of the 11% rise of the ringgit itself during the course of the year and hence bumping up their returns for the year, he adds.

Market sentiment really picked up only in the middle of the year, driven by strong newsflow including the announcement of the Economic Transformation Programme (ETP) which was announced on Sept 21.

The ETP is a major economic programme encompassing mega projects and which is expected to propel the nation from a middle-income nation to a high-income one by 2020.

“That generated enough buzz and gave investors a reason to buy into the market as it could create a sorely needed new domestic investment cycle,” says Gan Eng Peng, head of equities at HwangDBS Investment Management Bhd.

“Secondly, political opposition faded (by mid-year), and with it a more stabilised view by domestic funds.
Thirdly, the return of foreign funds, attracted by the strong currency, decent economic outlook and the fashionable South-East Asian investment theme of the moment, this drove our market to new highs towards year-end,” Gan says.

Quantitative easing, which is basically the act of printing money to boost ailing economies, by the United States helped flood Asian markets this year as the money found its way into this part of the world in search of higher returns.

The latest “quantitative easing” by the Federal Reserve, also known as the QE2, will create US$600bil in greenback cash, likely to make their way here as well given the anaemic growth trend in Western economies.
It will add to the US$1.7bil the Fed injected into the economy between 2008 and 2009 under the first QE.

A lot of concerns have been raised as to what will happen when economic fundamentals change and the “hot money” is pulled back from Asian markets.

However, Prime Minister Datuk Seri Najib Tun Razak said recently the flow of “hot money’’ into Malaysia had not reached an alarming rate and that the central bank had enough financial instruments to manage risks.

Stock performance

Based on information from Bloomberg, the best-performing member of the 30 index-linked counters this year up until Dec 15 in terms of price appreciation is RHB Capital Bhd.

The stock has appreciated by 60.19%, outperforming the Finance Index which inched up 25% in the same period.

Not surprising, being a financial group and therefore a proxy to the recovering economy.

According to a recent Bloomberg report, RHB Cap’s RHB Investment Bank overtook CIMB Group Holdings Bhd to become the No. 1 adviser on acquisitions of Malaysian companies for the first time since at least 2005, working on US$11.5bil of deals.

Axiata Group Bhd is second on the list, with the stock appreciating some 55% .

Axiata has telecommunication operations in the less mature mobile markets of Sri Lanka and Bangladesh and has been benefiting from a higher number of subscribers in these countries.

In contrast, Maxis Bhd which only houses its Malaysian operations made it to the top ten list of worst performing index-linked counters.

The stock has shed 1.86% from the beginning of the year until Dec 15.

Genting Bhd was third on the list, appreciating 50.1% as it enjoyed healthy contributions from its Singapore operations.

Gamuda, which is a frontrunner for the massive RM36bil mass rapid transit project, also made it to the top ten performing stocks, ending the year more than 44% higher than at the beginning.

Also on the top ten list are the two biggest banks in the country – CIMB, whose stock price appreciated some 37% and Malayan Banking Bhd, up 24%, as well as another financial group AMMB Holdings Bhd which added 33%.

Completing the list are PLUS Expressways Bhd which was up 34% following the proposed RM23bil disposal of its business to UEM Group and the Employees Provident Fund, Kuala Lumpur Kepong Bhd, a pure plantation play and beneficiary of steady crude palm oil prices – which added 29% and Petronas Dagangan Bhd, which went up 39%, thanks to its market leadership share.

Some of the other worst-performing index-linked counters this year included Sime Darby Bhd which lost more than 3.5%, no thanks to its RM2.1bil losses it suffered due to mismanagement and wrongdoings at its energy and utilities segment, and Malaysia Airlines which shed 9.64%.

The national carrier reported losses for its second quarter this year following a net profit of RM310mil, the quarter earlier due to paper loss from derivative trading stemming from its hedging policy.

However, it reversed its losses in the third quarter, due to a derivative gain.

The world trichotomised

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WHAT ARE WE TO DO
By TAN SRI LIN SEE-YAN

I AM often asked: What's happening to the world? Indeed, the world seems so messed-up we can't take anything for granted. It does look like the world is not simply just dichotomised anymore.

We are used to talk of north versus south, haves versus have-nots, developed versus developing. All this has changed since Friedman's (N.Y.Times) discourse that the world is flat; but we have since realised the world is not really flat (Ghemawat, Harvard).

What's going on? Why is there no convergence. What's in store for the future? Before we begin the new year, I intend to devote my last column for 2010 to throw some light on these important questions, and what we can look forward to in 2011.

State of the world economy

As I see it, the situation in the United States blows hot and cold.
By December, the US economy reached a crossroad as a flurry of data showed consumption may be recovering fast enough to sustain growth in 2011, despite weaker investment, continuing high unemployment and a gloomy housing outlook.

What's promising is inflation continues to fall (core personal consumption prices rose only 0.9% in October).
This prompted former Fed chairman Volcker to conclude the economic outlook is for continuing but limited increases in economic activity for the next year or more.

He added, inflation is not a problem next year, it won't be a problem for several yearsI see no possibility, frankly, that a deflation will take place. Over a period of time, price stability will be conducive to a strong economy.

Make no mistake, President Obama is worried: What is a danger is that we are stuck in a new normal' where unemployment rates stay high in the face of continuing high corporate profits where businesses learned to do more with less.

However, the tax package awaiting approval in Congress could give a noticeable boost to economic activity next year providing a second stealth stimulus package without antagonising lawmakers reluctant to spend more to spur growth.

The total package could amount to US$900bil (larger than the first stimulus package in '09) of spending and tax cuts over the next two years. In 3Q10, the economy was stalling at 2.5% (2.5% in 2Q10).

This gives us a chance to do what most people thought wasn't going to be possible in this environment which is to provide a real forward lift to the economy relatively quickly, according to Summers (director, National Economic Council).

Economists have since grown more optimistic, seeing a stronger expansion in 1H11, with growth picking up speed as the year progresses (as much as 3.5% next year).

Odds on a double dip recession are now cut to 15%. Data released in recent days point to recovery gathering steam in 4Q10 (shoppers' purchases were up 0.8% in November and core wholesale prices rose a milder 0.3%), pointing to growth of 3.5% in the final quarter.

Nevertheless, while 4Q10 is shaping-up rather decent, the Fed continues to view the pace of recovery as still too slow to bring down the 9.8% unemployment rate. Its US$600bil bond buying programme (QE2) is expected to continue.

The euro-area remains under siege. Greece and Ireland are in International Monetary Fund's intensive care.
The fiscal crisis threatens to engulf the peripheral PIIGs (Portugal, Ireland, Italy, Greece and Spain). Yet, for all its sovereign bond risk turmoil, overall, its real economy is stabilising.

The Organisation for Economic Cooperation and Development (OECD) think tank raised its forecast growth in the 16-member nations sharing the euro, to 1.8% for '10 (2% in 4Q10), slow by US standard, but acceptable for the aging continent.

Growth across the euro-bloc will soften before picking up again: it is expected to average 1.6% in '11 and 1.8% in '12. Euro-zone growth slowed markedly in 3Q10 as Germany's rapid growth spurt lost momentum, intensifying pressure on Europe's weakest economies.

This deceleration reduced opportunities for the PIIGs to grow out of the current crisis by exporting to its neighbours. It also showed euro-zone lagging behind the United States which is doing much better.

So, recovery will be modest in the next two years, as deficit reduction plans weigh in on growth, and large imbalances in the peripheral nations with high debt are wound down.

This fans concerns of a widening chasm between Germany's buoyant prospects and continuing struggles of the PIIGs economies.

It highlights a dualism in Europe between core countries mainly in northern Europe and the euro-zone laggards which have since become a source of serious concern. Although Germany is doing well, it may not be enough to save others in the euro-zone. This perception of the euro-zone drifting apart has been and remains a driver of the sovereign debt crisis.

Continuing market jitters about the situation is one of the main risks to play out in 2011.
The outlook for stronger growth in Europe faces two big threats.

First, fiscal tightening is expected to begin with vigour next year. But there are already enough signs of intensifying social unrest. Second, growing tension in Europe's peripherals (viz. PIIGs).

Ireland and Greece are in recession with debt overhang ratios exceeding 100%. The austerity required of them is unlikely to be readily met. Spain and Italy are barely growing and they too need to tackle their budget deficits, with ratios too high to be sustainable.

Portugal has only started to act on its deficit. Delays have kept its economy afloat but made bond investors rather nervous.

The PIIGs account for 35% of the euro-area economy (18% without Italy). Their fragility has not so far outweighed the strength of the entire region.

However, they have outsized effects on monetary policy simply because of their impact on confidence, especially in the bond markets. It is interesting Germany and the European Central Bank (ECB) have taken a tag team approach to keep the euro-zone afloat: the former supports the zone's economy and the ECB, its financial markets.

One key success of the euro has been its financial integration, so much so its banks are now heavily exposed to each other's debts. So, more trouble in the peripheral nations could easily spread with dire consequences for the euro-zone as a whole.

Since the great recession, the emerging economies have been by far the biggest contributor to global expansion.

From Guangzhou to Sao Paulo, from Bangalore to Incheon, the big emerging economies have been roaring ahead, even as United States and Europe were mired in deep recession.

Spare capacity was rapidly used-up and fear of bubbles (from capital inflows following continuing monetary easing in US and Europe) was replaced by broader overheating and fear of inflation.

China and India led the way with sustainable high growth rates and with even higher imports.
As did Brazil, where rising consumer demand packed shopping centres, and imports in November surged 44%. But inflation lurks.

Nowhere has the economic mood been so ably lifted as in emerging East Asia (North-east Asia plus Asean 6), led by China. Emerging East Asia's gross domestic product (GDP) grew by 8% annually since 2004 (9% in '10) and is expected to continue to rise by 7% in 2011.

China will expand by 10% this year (+9.1% in '09) and 9% next year.

Similarly, Asean 6 according to the ADB will grow by 5% in 11 after expanding 7.5% in '10 (1.3% in '09).
In contrast, growth in the United States in '10 is expected at 2.8% (-2.6% in '09) and 3% in '11.

Euro-zone GDP contracted by 5.2% in '09, and set to recover by 3.2% this year, with growth of 1.4% in '11.
But inflation worries are causing a policy dilemma.

High food and energy prices plus capacity constraints in the face of the Fed's quantitative easing (QE2) will force central banks to raise interest rates more aggressively. But higher interest rates to fight inflation will attract even more funds. Inflation is highest in India (9%) and Brazil (6%): in China, 4%, S. Korea, 4%; Indonesia, 5.7%; Malaysia, 2%.

To ensure interest is kept at rates appropriate to their particular circumstances, some emerging Asia economies have resorted to selective controls to offset the impact of continuing inflows of cheap monies.
Manufacturing activity strengthened significantly in China and India in November, underlying a widening gap between two of Asia's largest economies and the rest of the region.

Not unlike Europe, Asia is being dichotomised into two economic camps as growth streams ahead in China and India, but grows at a slower pace in much of emerging Asia or stays relatively flat, as in Japan. But unlike Europe, where its life-wire (Germany) is moderating, emerging Asia's big brothers are pushing ahead: China recorded in November its 7th successive month of manufacturing expansion.

Similarly, India registered a blistering 8.9% growth in 3Q10, its third in a row exceeding 8%.
Their continuing expansion is fuelled by rapidly rising demand within the Asian community, thus sharing prosperity through reversing the tide in the directional flow of goods and services.

Focus has sharply swivelled to Asia: Before, we mainly worry about the Christmas and New Year seasons in the United States and Europe. Now we also look at Ramadhan, Deepavali and Chinese New Year.

There is a clear surge in intra-regional trade in Asia which grew at an average annual rate of 13.4% from 2000 to 2009, valued at US$1 trillion. Nearly 50% of Asian exports (ex Japan) now go to other Asian nations, more than the current demand for Asian exports from the United States, Europe and Japan combined.

Another 17% goes to rest of the world, meeting largely Russian and Brazilian demand.

The main driver of this drama: China and India. In 1916, Nobel laureate Tagore (Indian poet) roamed from Calcutta to Tokyo in search of one Asia. The poet's vision was misty. Yet, by end of the century, Asia is knit together in a value adding manufacturing supply chain stretching 5,000km from Seoul to Penang to Bombay.

Importing pessimism

As I see it, the world has changed, and dramatically since the great recession. The outlook for 2011 and beyond rests on what happens in three great areas: the United States, Europe and emerging economies.

Fair enough Japan is still an economic heavy weight but it has ceased to be dynamic and unlikely to surprise. Unfortunately, all three are heading in different directions with different growth prospects and having non-compatible policy choices.

The outcome depends on how increasing chances for friction play out. The United States and Europe avoided depression by working together with a shared economic philosophy.

Now both are preoccupied with clear domestic demands. They have since adopted wholly opposite strategies to deal with them: the United States continuing to stimulate until recovery is secured (i.e. falling unemployment) before tackling its fiscal and debt issues; euro-zone is dead-on fiscal austerity and consolidation, subjecting profligate members to tough fiscal adjustments now in exchange for assistance.

The United States continuing loose monetary policies and euro-zone concerns with sovereign debt defaults both encourage a continuing flow of virtually costless funds to emerging economies in search of higher returns.
Such massive capital inflows infuriates large emerging economies' central banks which are reluctant to raise interest rates (and attract even more such funds) so needed to dampen rising inflation.

Therein lies the policy dilemma for each of the three.
Bear in mind that over the next five years, emerging economies are expected to account for one-half of global growth, but only 13% of the increase in net global public debt.

This simply means that given divergent goals of policy, the world economy is unlikely to give any priority to global rebalancing (which is so badly needed) in favour of more of the same.

The consequence: widening the gap between debt ridden US and Europe and thrifty big emerging nations.
It need not be this way, of course. The United States and Europe can work out a deal to better regulate the financial system; with the United States starting early enough to put its fiscal house in order and Europe, institutionalising the euro and putting its banking system on a more sustainable footing.

On its part, major emerging economies can start rebalancing their macroeconomic policies, including adjusting the exchange rate to better reflect underlying market conditions.

This, of course, is the best case scenario. But I won't bet on it. I see continuing friction ahead, leading to more uncertainties in terms of policy actions but little effective international collaboration and co-ordination. That's life I guess.

In times of stress, subjecting national interest to the noble greater global interest is asking too much. So Asia, stand ready for another year of importing pessimism.

Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching and promoting the public interest. Feedback is most welcome; email:starbizweek@thestar.com.my.

Settle loan or else...

State threatens to publish defaulters' names in newspapers

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THE names of those who defaulted in the repayments of study loans from the Penang Government’s Education Fund will be published in newspapers if they fail to pay up by the end of the month.

Chief Minister Lim Guan Eng said the names of their guarantors would be published as well.

He said 1,685 defaulters had yet to settle RM7.54mil as of Nov 30 while 5,965 borrowers made prompt payments.

He said the defaulters included those who took loans in the 1970s.

“We need to keep the fund running to enable others to take loans to further their studies in certificate, diploma, degree, masters or PhD courses,” Lim told a press conference at his office in Komtar yesterday.

He said legal action would be taken against defaulters who did not pay up after their names have been published.

He said those who had taken study loans from the fund could check their status by calling the Students Loans Unit at Komtar’s 29th floor (04-6505627/5599/ 5165/5391) or visit the state government’s website (www.penang.gov.my).

Those who wish to apply for the loans could do so online through the same website from May 2 to July 31 every year.

On another education related matter, Lim said the state government had disbursed RM1.652mil in financial aid this year under the state’s Scholarship Trust Fund to help poor Forms One to Five students in the state.

He said the amount disbursed last year was RM1.539mil compared to RM625,440 in 2008.

He said the state had last year doubled the aid from RM240 to RM480 a year for those in Forms One to Three while those in Forms Four and Five got RM720 a year from RM360 previously.