A version of this article was first published in The Straits Times on 15 January, 2014
THE Ministry of Law is looking to clamp down on people who “over-extend” themselves by flitting between moneylenders to borrow cash.
As part of an ongoing review into the industry, it is considering introducing a cap on how much an individual can borrow, collectively, from all moneylenders in Singapore.
Following his Facebook post on the subject on Monday, Law and Foreign Minister K. Shanmugam yesterday re-emphasised the importance of reviewing how moneylenders are regulated, after concerns were expressed in the media “about people borrowing too much” and “credit being too freely available”.
“If people need money, then they will try and find a way to borrow from someone,” he said. “What the law can do is to try and protect vulnerable borrowers.”
The ministry told The Straits Times it “is looking to put in place a limit on the total amount of unsecured loans that borrowers can take across all licensed moneylenders. This will ensure that borrowers do not over-extend themselves in credit”.
There are more than 200 licensed moneylenders in Singapore, up from 173 five years ago. The proposed cap would align their loan policy with that of financial institutions.
Following new bank borrowing limits set by the Monetary Authority of Singapore last September, people whose unsecured debts total more than 12 months of their income for 90 days or more will be barred from receiving more credit from June next year.
Moneylenders have so far only been operating individually within income-specific loan limits.
These are regulated by the Registry of Moneylenders, which comes under the Ministry of Law.
The most that moneylenders can give out is four months’ income if a borrower’s annual pay is $30,000 to $120,000, and two months’ income if his annual pay is $20,000 to $30,000. For those earning less than $20,000, the limit is $3,000.
There are interest rate caps for those with an annual income below $30,000, and a minimum age of 18 years for borrowers.
However, according to Mr Lim Cheng Boon, head of counselling at Credit Counselling Singapore, these restrictions do not stop borrowers from seeking loans through several different moneylenders, meaning they can potentially incur huge debts.
“An overall cap across all lenders is better,” he said, adding that with the new bank limits set to take effect next year, “there is also a worry more people will go over to moneylenders instead”.
Noting that his organisation has counselled an individual who took loans from 41 different moneylenders, Mr Lim said a cap would be feasible only if there is “a centralised database or body to keep track of how much people are borrowing from different moneylenders”.
A review of the licensed moneylending industry began in late 2012, the year the ministry introduced a suspension of the issuing of new moneylender licences which still stands today.
More details of the ministry’s plans are expected to be announced in the second quarter of this year.
* See two other related stories: