THE government on Friday accepted 12 recommendations by the Advisory Committee On Moneylending to strengthen Singapore's moneylending regulatory regime. Some of these recommendations were found by industry practitioners to be immediately tougher but could, they told BT, eventually lead to a more robust, efficient marketplace.
One of the recommendations was that interest rates - including those for late payment - do not go beyond 4 per cent per month; the upfront administrative fee will not be more than 10 per cent of the loan principal; and that the late fee will be capped at S$60 per month.
Additional fees - such as fees currently allowed for dishonoured cheques issued or unsuccessful Giro deductions - will be barred. To boot, total borrowing costs - comprising administrative fees, interest payments and late fees - will be capped at 100 per cent of the loan principal.
"This will help prevent debts from spiralling out of control . . . (we've) noted several instances of debts growing by many multiples of the principal sum," the Committee said in a statement.
Notably, borrowers earning at least S$20,000 a year will be allowed to borrow up to six times their monthly salary in aggregate (collectively from one or more moneylenders). This compares to the current practice of borrowing up to four times their monthly salary from each moneylender.
Law Minister K Shanmugam, speaking at a media briefing, said the recommendations seek to strike a balance between protecting the borrowers and allowing the moneylending industry to remain commercially viable.
"(We're) making sure that we don't kill off the moneylending industry because then there's no access to credit . . . and (this may) move the borrowers to the unlicensed industry. There's a place for the moneylending industry, as some people cannot borrow from the banks," said Mr Shanmugam.
An unnamed licensed moneylender however noted that the new controls on interest rates and borrowing costs will "significantly" clobber earnings, the bulk of which come from interest payments and borrowing fees.
Granted, this likely applies to less than 10 per cent of the 179 licensed moneylenders here, who currently charge interest rates of up to 20 per cent, said David Poh, president of the Moneylender's Association of Singapore.
"The protection of borrowers does not come at the expense of the moneylenders . . . because the latter will benefit from the proposed Moneylenders Credit Bureau by having access to aggregated credit information on borrowers and lending to fewer 'bad borrowers'," said Mr Poh.
The new rules, he added, will eventually force out the less efficient practitioners and raise the professional standards of the industry, leading to a "win-win".
The Committee, announced last June by the Ministry of Law, had on Friday unveiled 15 recommendations. The remaining three that the Law Ministry said it would review in time include lifting the moratorium on the granting of new licences, controlling debt collection behaviour and regulating advertisements by the moneylenders.
On the latter, Mr Shanmugam said the government would adopt a wait-and-see approach. "Our sense is that unrestrained advertising encourages borrowing when in fact the person doesn't need to borrow. Our approach is to try and see how we can structure it such that those who really need (to borrow) will go and find a way of borrowing but we don't want to induce demand through advertising."
Meanwhile, the 12 accepted recommendations will progressively be rolled out, with the caps on interest rates and borrowing costs as early as next month.