Recommendations include 4% per month interest rate cap, loan limits
By Joyce Lim, The Straits Times, 4 Nov 2014
AN ADVISORY committee has proposed some major changes in the regulation of the licensed moneylending industry, including an interest rate cap of 4 per cent per month and a "reducing balance" basis for loan repayments.
The committee announced its recommendations at a conference yesterday, eliciting strenuous objections from moneylenders over the low interest rate. It also suggested late-payment interest be capped at the same rate of 4 per cent, and that no other fees be allowed to be imposed on borrowers.
The 15-member panel, initiated by the Law Ministry in June, also recommended limiting the total amount a person can borrow from multiple lenders to four times the borrower's monthly income, as well as capping loans at $3,000 for those who earn less than $20,000 a year.
Chaired by Mr Manu Bhaskaran, director of Centennial Group International, a policy advisory group based in Washington, DC, and adjunct senior research fellow at the Institute of Policy Studies (IPS), the committee made its five draft recommendations at the IPS conference on moneylending.
It requested feedback from conference participants, who comprised moneylenders, grassroots leaders and representatives from voluntary welfare organisations.
Mr David Poh, president of Moneylenders Association of Singapore, told The Straits Times that moneylenders felt the capped 4 per cent interest rate would be "impossible" to work with.
Currently, they charge an interest rate of between 20 and 40 per cent per month.
Law Minister K. Shanmugam, who held a dialogue at the end of the conference, noted the strong feedback over the interest rate and assured participants the committee would review the figure.
"The data that the committee worked on showed that moneylenders should be able to make a decent profit out of it. But I think a fair bit of feedback was given that it's actually very difficult," said Mr Shanmugam, who is also Minister for Foreign Affairs.
He urged moneylenders to provide data on why a 4 per cent rate cap would not work for them.
He said a cap was necessary to protect vulnerable borrowers with little knowledge or leverage.
But moneylenders told The Straits Times they do not cater to such low-income borrowers.
"With the current effective interest rate capped at 20 per cent for a low-income borrower, I would be making very little per month for a loan of $500," said a moneylender, who gave his name only as Mr Ng. "Many of us would turn away such borrowers."
Yesterday, the committee also called for a set of guidelines on acceptable debt-collection practices after noting that harassment of borrowers made up the largest category of complaints received.
It also said the Ministry of Law would consider relaxing current advertising restrictions to allow some advertising in newspapers.
Moneylenders in a tizzy over 4% rate cap proposal
They say figure is not tenable, call for higher monthly rates of 15-20%
By Joyce Lim, The Straits Times, 5 Nov 2014
MONEYLENDERS here admit there is a need to cap loan interest rates instead of the current system where they are free to charge as much as they want, with rates averaging 20 to 40 per cent a month.
But they insist they should be allowed to charge 15 to 20 per cent a month to survive, and that the 4 per cent monthly rate proposed by an advisory committee is simply not tenable.
On Monday, the committee announced five draft recommendations, including the 4 per cent cap on monthly interest rates and limits on loan amounts.
The 15-member panel was formed in June to review the licensed moneylending industry in the light of complaints about high interest rates and excessive borrowing. Its proposals have left many industry players unhappy.
Mr Wayne Ng, 30, assistant secretary of the Moneylender's Association of Singapore, said yesterday that moneylenders were shocked by the proposed 4 per cent figure.
In deriving the number, the panel made comparisons with other jurisdictions in Hong Kong, Australia, Britain and Japan, which charge between 1.5 per cent and 4 per cent per month.
Mr Ng said he made a presentation to the committee two to three months ago in which he spelt out the costs of running a moneylending business. "I don't know how the panel came up with 4 per cent even after we shared our operating costs. Four per cent is totally not feasible."
To illustrate his case, Mr Ng - who operates a moneylending firm in the heartland - said he pays $7,000 a month for office rental. He has three employees and pays them an average salary of $2,000 per month each.
"Assuming I managed to loan $100,000 in one month and everyone pays me back in full within the month, at 4 per cent interest I would make a gross profit of $4,000. That's not even enough to cover my rental," said Mr Ng.
The association's president, Mr David Poh, said he would hold a meeting with all his 140 members in two weeks, where he would consolidate data from them to submit to the committee, for it to review and consider raising the figure.
Mr Poh, 60, who is on the committee, noted that moneylenders typically serve high-risk borrowers who are unable to get loans from banks, and at least 20 per cent of such customers default on their payments.
"It's a high-risk business and moneylenders rely on short-term interest gained from the loans. Hence, they would need to charge a higher interest rate to sustain their businesses," he said.
A moneylender who gave his name only as Mr Lim said some people have labelled them as "licensed loan sharks" as they charge the same interest rates as illegal moneylenders, of between 20 and 40 per cent per month.
"But we do not harass our borrowers like the loan sharks. We also do not change the loan conditions as and when we like," Mr Lim said. "I have heard of cases where the loan shark charges a $1,000 late fee per day."
A hawker who wanted to be known only as Mr Foo said he borrows from licensed moneylenders despite the high interest as banks would not serve him owing to his history of defaulting on payments. "I am embarrassed to borrow from my friends and it would be too risky to borrow from loan sharks," said Mr Foo, who started taking loans from licensed moneylenders a year ago.
Mr Ng said: "The low interest rate cap would squeeze many licensed moneylenders out of business and the gap would be quickly filled by the loan sharks."