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Is it lawful to participate in kootu funds scheme in Malaysia?

Interpretation of kootu fund

Kootu fund is defined as a scheme or arrangement variously known as kootu, cheetu, chit fund, hwei, tontine or otherwise whereby the participants subscribe periodically or otherwise to a common fund and such common fund is put up for sale or payment to the participants by auction, tender, bid, ballot or otherwise and includes any scheme or arrangement which with variations partakes of the nature of a kootu, cheetu, chit fund, hwei or tontine[1].

Succinctly, kootu fund is a pool of money raised by contributions of a group of individuals to a common fund at regular intervals, consisting of a previously agreed amount of money periodically on a weekly or monthly basis.

History of kootu funds

Kootu funds were predominantly and substantially practiced amongst family members, friends and/or within a small group of villagers for an easy acquisition of extra amount of money. It is found to be user friendly by the participants considering that the scheme is treated as a micro-financing scheme. The scheme is built on the basis of mutual trust amongst family members and close friends. It is not profitable in nature, but it serves as a financial support to the participants[2].

Kootu funds were considered as a huge business in Malaysia and Singapore in the mid-20th century and the industry was dominated in the 1970s by Gemini Chit Fund Corp Ltd, a Singaporean company[3] which was managed by Abdul Gaffar Mohamed Ibrahim as the founder of the historic scheme. The founder managed to attract public subscription and enrolled up to 50,000 members whereby the lure was the promise of unusually high returns on investment[4]. However, sometime in 1973, Abdul Gaffar pleaded guilty for three charges of criminal breach of trust amounting to $3.2million. The estimated loss was about $50million[5]. He was therefore sentenced to life imprisonment. Choor Singh J, the judge sitting on bench for this matter then dubbed the case as “the swindle of the century” and thereafter this case was marked as the biggest white-collar crime in Singapore[6]. The sentence imposed to Abdul Gaffar marks the tumbling down of chit funds businesses. As a consequence thereof, chit fund was banned in both Malaysia and Singapore[7].

The law governing kootu funds

Kootu funds in Malaysia is governed by Kootu Funds (Prohibition) Act 1971 (hereinafter referred to as “Act 28”) which was enacted to prohibit the registration or licensing of businesses which promote or designed to promote kootu funds. Section 3 of Act 28 clearly stated that it is unlawful for any person to carry on the business of promoting kootu funds[8]. Section 4 of the same act further states that any business in the state of Peninsular Malaysia which promotes or designed to promote kootu funds shall not be registered under the Registration of Business Act 1956[9]. For Sabah and Sarawak, the business which promotes kootu funds shall not be licensed under the Trades Licensing Ordinance of Sabah and Trades Licensing Ordinance of Sarawak[10].

Based on the above-cited provisions, it is apparent that Act 28 emphasized on the word “businesses”. This essentially means that it is unlawful when a person run a business, gain profit and enriched himself from the contributions of the kootu funds promoted to the society. However, Act 28 is silent as to whether the participation of kootu funds between family members and close friends is considered lawful. Notwithstanding the aforesaid, according to Teeruvarasu K. Muthusamy, an advocate and solicitor, traditional kootu fund amongst family members and friends is legal pursuant to the Registrar of Societies (RoS). It is further added that the participation in kootu funds scheme becomes an offence when the leader charges a fee of membership from the participants to subscribe or join the kootu scheme and when the leader claims profits from the contributing members to enrich himself[11].

Apart from the above, there exists another statute governing kootu funds in Malaysia viz. the Kootu Funds (Validation) Act 1974 (hereinafter referred to as “Act 142”) which was enacted to validate the funds for the purposes of winding up certain past transactions in respect of kootu funds operated by companies. Section 3 of Act 142 intimated that all kootu funds which were in operation on or before 18th February 1971 and were operated by a company which has been wound up in accordance with paragraph 8(2)(b) of Act 28 or the provisions of the Companies Act 1965, shall be lawful and enforceable[12]. Hence, it is apparent that 18th February 1971 serves as a cut-off date for the operation of kootu funds businesses.

Punishment(s) for participating in kootu funds scheme

Section 3 of Act 28 clearly stipulates that any person who is found guilty of carrying on the business of promoting kootu funds shall be liable to a fine not exceeding RM500,000 or to imprisonment for a term not exceeding 10 years or both. Before the amendment in 2011, the sentence was a maximum of three (3) years’ imprisonment or a fine not exceeding RM10,000 or both. The increase in the sentence imposed proves that the said offence is considered as a serious offence.

On or about February 2022, a nasi lemak seller who is also a mother of three was the first person to be prosecuted and charged under Act 28 subsequent to an investigation conducted by the Companies Commissions of Malaysia (CCM) in September 2018 based on the reports lodged[13]. She pleaded guilty for organizing a kootu fund for five individuals via her Facebook account between January and August 2018 whereby she managed to chalk up to over RM100,000. She was therefore fined for RM50,000 and sentenced to imprisonment for a year in consequence of her conduct[14]. The evidence received by the CCM’s prosecutor revealed that she had utilized her personal account for acquiring and remitting the proceeds of money from the contributors and/or participants.


Ultimately, despite the current undoubtedly worrying economic condition and the rising of inflation rate in Malaysia which has no certainties of recovery in the near future, participating in any illegal scheme should never be an option. This is essential, because it is unlawful to treat kootu fund scheme as a business, one may also be prosecuted under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) considering the strict implementation of the said act in Malaysia which provides measures to be taken by financial institutions to detect any criminal activities. One’s personal bank account may be terminated without any ground of termination being disclosed to the customers should the bank believes or there exists any reasonable ground to believe or suspect that the account is used for money laundering or other fraudulent and/or illegal schemes[15].

[1] Kootu Funds (Prohibition) Act 1971 Section 2 of Act 28

[2] Acams Today (2011). Malaysia and Anti-Money Laundering Retrieved from

[3] FMT (2022). Playing the kootu game: quick cash or scam? Retrieved from FMT website

[4] K Anparasan, WHITE-COLLAR CRIME IN SINGAPORE. Then and Now. (2009) 21 SAcLJ 16


[6] K Anparasan, WHITE-COLLAR CRIME IN SINGAPORE. Then and Now. (Supra)

[7] FMT (2022). Playing the kootu game: quick cash or scam? (supra)

[8] Kootu Funds (Prohibition) Act 1971 Section 3 of Act 28

[9] Kootu Funds (Prohibition) Act 1971 Section 4 of Act 28

[10] Kootu Funds (Prohibition) Act 1971 Section 5 and section 6 of Act 28

[11] Bernama (2021). Be cautious when playing kootu funds. Retrieved from

[12] Kootu Funds (Prohibition) Act 1971 Section 3 Act 142

[13] Predeep Nambiar (2022). Nasi lemak seller who ran ‘kootu’ fund fined RM50,000. Retrieved from FMT website

[14] Ibid

[15] Aura Indah Jaya Sdn Bhd v OCBC (M) Bhd [2021] 10 MLJ 21

Authored by Nurin Husnina Hussein

Kindly note that this legal article does not, and is not intended to, constitute formal legal advice by the Firm, instead all information, content and materials available on this site are for general informational purposes only. If readers require further clarification or legal advice, please email


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