Govt to limit amount individuals can borrow

SINGAPORE — The amount of loans one can take from licensed moneylenders will soon be capped, part of several moves to be taken by the Government to further regulate the industry here.

The Law Ministry intends to establish a central credit bureau that will enable “tighter controls” over the total amount of unsecured credit an individual can borrow from moneylenders, said its Senior Minister of State Indranee Rajah yesterday. Current restrictions limit the amount that can be borrowed from each moneylender.

The ministry is also reviewing the interest rate cap and considering whether there should be further restrictions on the charging of fees — such as early redemption or loan termination charges — which can escalate for the borrower. There are 200 licensed moneylenders here.

“We are cognisant that some borrowers turn to moneylenders in desperation and this makes them vulnerable to exploitation,” said Ms Indranee, as Parliament debated the Law Ministry’s budget for the coming financial year.

Members of Parliament Lim Biow Chuan (Mountbatten) and Zainal Sapari (Pasir Ris-Punggol GRC) had raised concerns over the high interest rates that licensed moneylenders charge and called for more regulation on the types of fees they can charge a borrower.

The interest rates charged by licensed moneylenders could be up to 20 per cent if the borrower’s annual income is below S$30,000, Mr Lim said.

Ms Indranee said there are competing considerations involved in setting interest rate caps. If the cap is set too low, it would not be commercially viable for licensed moneylenders to service borrowers with high credit risk and would force borrowers to turn to loansharks, she said. “However, if the cap is too high, borrowers will be overcharged by moneylenders,” Ms Indranee added.

The Law Ministry is also studying the statistics on the concentration of lenders and borrowers. However, geographical restrictions may have limited effectiveness in a small country like Singapore, Ms Indranee said. “Our size is such that travelling costs may not deter borrowers from going to moneylenders in different parts of the island,” she added.

Mr Lim sought a definitive date on the outcome of the review, as he noted that licensed moneylenders sometimes resorted to “harassment techniques” to collect debts, which cause stress for the borrower. He added that the review should include the regulation of debt collection methods. In response, Law Minister K Shanmugam said the “nature of the problem” must be studied carefully as the industry may be driven “underground”.

The ministry is also reviewing the bankruptcy regime, possibly allowing bankrupts to be eligible for discharge within “clear time frames, where justifiable”.

“The time frame for discharge will be differentiated, depending on factors such as whether a bankrupt pays back a targeted amount, whether his creditors object to his discharge and whether there were extenuating circumstances during the bankruptcy,” Mr Shanmugam told Parliament. “This approach should also provide an incentive for bankrupts to cooperate.”