By Hoe Pei Shan, The Straits Times, 15 Jan 2014
THE Ministry of Law is looking to clamp down on people who "over-extend" themselves by flitting between moneylenders to borrow cash.
As part of an ongoing review into the industry, it is considering introducing a cap on how much an individual can borrow, collectively, from all moneylenders in Singapore.
Following his Facebook post on the subject on Monday, Law and Foreign Minister K. Shanmugam yesterday re-emphasised the importance of reviewing how moneylenders are regulated, after concerns were expressed in the media "about people borrowing too much" and "credit being too freely available".
"If people need money, then they will try and find a way to borrow from someone," he said. "What the law can do is to try and protect vulnerable borrowers."
Post by K Shanmugam Sc.
The ministry told The Straits Times it "is looking to put in place a limit on the total amount of unsecured loans that borrowers can take across all licensed moneylenders. This will ensure that borrowers do not over-extend themselves in credit".
There are more than 200 licensed moneylenders in Singapore, up from 173 five years ago. The proposed cap would align their loan policy with that of financial institutions.
Following new bank borrowing limits set by the Monetary Authority of Singapore last September, people whose unsecured debts total more than 12 months of their income for 90 days or more will be barred from receiving more credit from June next year.Moneylenders have so far only been operating individually within income-specific loan limits. These are regulated by the Registry of Moneylenders, which comes under the Ministry of Law.
The most that moneylenders can give out is four months' income if a borrower's annual pay is $30,000 to $120,000, and two months' income if his annual pay is $20,000 to $30,000. For those earning less than $20,000, the limit is $3,000.
There are interest rate caps for those with an annual income below $30,000, and a minimum age of 18 years for borrowers.
However, according to Mr Lim Cheng Boon, head of counselling at Credit Counselling Singapore, these restrictions do not stop borrowers from seeking loans through several different moneylenders, meaning they can potentially incur huge debts.
"An overall cap across all lenders is better," he said, adding that with the new bank limits set to take effect next year, "there is also a worry more people will go over to moneylenders instead".
Noting that his organisation has counselled an individual who took loans from 41 different moneylenders, Mr Lim said a cap would be feasible only if there is "a centralised database or body to keep track of how much people are borrowing from different moneylenders".
A review of the licensed moneylending industry began in late 2012, the year the ministry introduced a suspension of the issuing of new moneylender licences which still stands today. More details of the ministry's plans are expected to be announced in the second quarter of this year.
Lending cap 'could drive borrowers to loan sharks'
Pros and cons to govt plan to limit total loans from moneylenders
By Hoe Pei Shan, The Straits Times, 16 Jan 2014
Pros and cons to govt plan to limit total loans from moneylenders
By Hoe Pei Shan, The Straits Times, 16 Jan 2014
IMPOSING a cap on borrowing across all moneylenders could drive the business underground to loan sharks, say industry players.
Several managers of licensed moneylending outfits told The Straits Times most of their clients have loans from four to six other lenders on average and that a cap could, in theory, help rein in over-borrowing - or send them seeking cash elsewhere.
"Once people need money, they need money, that's it. There are banks, moneylenders, then loan sharks - that's just how it works," said Mr Henry Sem, director of Euro Credit.
"If people are limited too much in the moneylending sector, they will just go to loan sharks."
The Straits Times reported yesterday that the Ministry of Law "is looking to put in place a limit on the total amount of unsecured loans that borrowers can take across all licensed moneylenders" in an ongoing industry review.
This cap would "ensure that borrowers do not over-extend themselves in credit", said the ministry.
There are currently only income-specific limits for each loan, which do not stop borrowers from accruing larger debts by taking multiple loans from as many moneylenders as they can.
These are regulated by the Registry of Moneylenders, which comes under the Ministry of Law.
Though current data is not available, as of December 2012, total outstanding unsecured debt owed to moneylenders was less than 3 per cent of that granted by financial institutions.
Under the proposed cap, the collective amount borrowed by individuals from all 206 moneylenders in Singapore would be limited, and loans would likely be tracked in a centralised database.
The key lies in drawing the limit at a "reasonable amount, based on a borrower's income" so as not to push someone desperate for cash through the back door, said another moneylending manager.
"The regulators will have to ensure the cap isn't set too low, consult businesses on the ground and structure it such that it is similar to the bank limits set by the Monetary Authority of Singapore," he said.
He was referring to new bank borrowing limits announced last September where people whose unsecured debts total more than 12 months of their income for 90 days or more will be barred from obtaining more credit from June 2015.
Though moneylenders estimate the loan default rate to be 25 to 35 per cent, including those who pay back some of their loans, borrowers too are against having their loans from moneylenders further limited, tracked and recorded.
A 50-year-old electrician who wanted to be known only by his first name, Donny, said he regularly takes loans amounting to $20,000 yearly from moneylenders to supplement his $50,000 annual income.
"I don't go to banks because they are stricter in checking records, whereas with moneylenders, if I don't get my loan from one, I just go to another. If moneylenders start checking records, I may go somewhere else."
He has not defaulted on payments, he said.
Another borrower, a construction site supervisor who identified himself only as Lawrence, said he has existing loans with 10 moneylenders for amounts between $500 and $1,200, and is worried he might easily bust an overall cap.
He said: "A cap is good and bad - good for routine needs but bad for emergencies. I can't go to banks, they are too strict, so in cases of urgent need, how?"
Mr Lim Cheng Boon, head of counselling at Credit Counselling Singapore, said: "A cap may restrict borrowing in the short term, but it's helping them in the long run to cope better with financial commitments."
More details of the ministry's plans are expected to be announced in the second quarter of this year.
But moneylenders are already bracing themselves for business to be hit hard by the proposed cap as "the borrowers' incentive to go to as many moneylenders as possible would no longer be there, and it would become a case of the first moneylender winning", said one, who wanted to be known only as Mr Voo.
Still, the consensus is that consolidating the industry would benefit their risk assessment of clients, which, in turn, could allow them to offer more competitive interest rates for certain borrowers.
"Right now the business is founded very much on trust, and there is no comprehensive way to verify a client's borrowing history - we just have to take his word for it," said Ms Guo Si Qi, the director of Synergy Credit. "It would be good to centralise the borrowing data so we can do proper checks on their risk profiles."