MAS relaxes rules on finance firms to help fund SMEs, including allowing foreign M&As

THE Monetary Authority of Singapore (MAS) announced on Tuesday that it would be relaxing some of its rules this year to strengthen the resilience of finance companies, so that they can provide more funding to small and medium sized enterprises (SMEs).

The regulator said it would also liberalise its policy of not allowing a foreign takeover of a finance company.

"This will accord finance companies greater flexibility to explore strategic partnerships and innovative business models that can strengthen their SME financing business,'' MAS said.

It added that it was prepared to consider an application for a merger or acquisition if the prospective merger partner or acquirer commits to maintaining SME financing as a core business of the finance company.

MAS will also be raising the limit on a finance company's aggregate uncollateralised business loans up to 25 per cent of its capital funds, from 10 per cent.

The limit on uncollateralised business loans to a single borrower will also be raised to up to 0.5 per cent of capital funds, from the current S$5,000.

"These changes will better enable finance companies to serve their SME customers, many of whom require unsecured credit for working capital needs,'' the regulator said.

Finance companies will be allowed to offer current account and chequing services to their business customers. They will also be allowed to join electronic payment networks, including Inter-bank GIRO, Fast and Secure Transfers (FAST) and Electronic Funds Transfer at Point of Sale (EFTPOS). These changes will enable finance companies to provide more comprehensive credit and deposit services to SMEs.

MAS said it would retain other regulatory restrictions on finance companies, such as restrictions on foreign currency exposures and derivatives trading. These restrictions will help to limit the business risks borne by finance companies and encourage them to remain focused on serving the domestic SME market.

There are three licensed finance companies in Singapore - Hong Leong Finance, Sing Investments & Finance and Singapura Finance. In Q2 2016, they accounted for just under S$7 billion of outstanding SME loans.