Malaysian finance firm eyes Singapore moneylending sector

Singapore

MALAYSIAN financing firm RCE Capital is staking a claim on the Singapore moneylenders market via a S$40 million fund injection into a Singapore fintech that will, in turn, offer lower lending rates and encourage prompt debt repayment.

The Singapore fintech, Credit Culture, plans to launch by the end of February a moneylending platform that offers loans with monthly interest rates capped at 1 per cent, its founder and CEO Edmund Sim told The Business Times on Tuesday.

These rates are significantly lower than that charged by banks on revolving credit-card payments, which can run up to about 26 per cent per annum, or more than 2 per cent per month. The approximate 26 per cent per annum rate excludes the further hike in rates or fees imposed by banks when borrowers do not make minimum payments on their credit-card bills. Under the Moneylenders Act, licensed moneylenders in Singapore cannot charge a monthly interest rate of more than 4 per cent.

Once it secures its licence, Credit Culture will run a round-the-clock online platform that claims to be able to disburse loans within 10 minutes directly into the applicant's account. The digital loan application process is made less cumbersome as it taps on MyInfo, the central data repository of Singapore citizens' information.

RCE Capital, which is a non-bank financial firm, mainly offers personal loans to government employees in Malaysia, with monthly repayments deducted directly from borrowers' monthly salaries. Mr Sim said RCE Capital, which is listed in Malaysia, does not hold a moneylending licence in Singapore.

The S$40 million investment from RCE Capital comes in the form of purchasing five-year bonds issued by Credit Culture, with the debt securities in turn secured against loan receivables from Credit Culture.

The coupon rate on the first S$20 million is 10 per cent per annum. The rate for the balance S$20 million has not been set, RCE Capital said. The bonds can be redeemed ahead of their maturity at the discretion of Credit Culture.

The fintech has also granted call options to RCE Capital, which give RCE Capital the right to take a stake of up to 30 per cent in Credit Culture, on the fully enlarged shareholding basis. This would make RCE Capital the second-largest shareholder of Credit Culture after the fintech's founders. RCE Capital can exercise the options to subscribe to shares when the fintech hits "certain milestones", said Credit Culture, without disclosing details.

The call options allow RCE Capital to take up a 20 per cent stake for another S$4 million, and a further 10 per cent based on the fintech's "future valuation", RCE Capital disclosed.

RCE Capital's investment is a fairly sizeable funding for a pre-Series A round. Credit Culture had at the end of 2017 secured S$4 million from a seed investor who holds about 20 per cent in Credit Culture's parent, Dey Pte Ltd. The regulatory filing by RCE Capital showed that the investor who holds a 21.4 per cent stake in Dey is identified as a Lee Kwok Bun.

Credit Culture's system essentially relies on data from the Singapore's own credit bureau to assess a borrower's credit-standing, and uses cloud technology to bring down the processing costs, said Mr Sim.

The fintech aims to differentiate itself not just with lower rates, but also by removing penalties for early repayment, with Mr Sim arguing that moneylenders should not be penalising borrowers who are willing to make repayments ahead of time. The fintech will also present upfront all rates and fees to make the process transparent, said Mr Sim.

Credit Culture's offering comes as the Ministry of Law (MinLaw) is running a pilot for moneylenders to explore digital business models. The aim is to lower overall borrowing costs, and have new licensees offer better terms to borrowers who make good on repayments.

Credit Culture's parent firm is among the six moneylenders that are running a pilot with MinLaw, and will be issued moneylending licences to operate outlets. The licensees will be allowed to operate for up to two years from 2019, after which MinLaw will review the pilot's results. There are now about 160 moneylending outlets in Singapore.

Mr Sim said the fintech plans to expand from its current staff strength of 12 - half of which are technology staff - to about 30 people. He declined to give a target on when he expects the fintech to break even.