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SINGAPORE: While Singapore businesses have been affected by COVID-19, there is one sector that is thriving: unlicensed money landing.
Almost 300 were arrested by the police for loan sharking activities in early September.
Just a month ago, 237 people, ages 13 to 77, were detained in a similar 11-day sting operation for acting as brokers, opening bank accounts to facilitate loan-infringement activities or engaging in acts of harassment.
There were also reports during the breaker of loan sharks that sent families hundreds of dollars in food deliveries, leaving them stuck with orders they didn’t place, and others recruited brokers to harass debtors while posing as executors of stay-at-home notices. .
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These incidents and arrests have drawn attention: Why are there still so many usurers in a modern society like Singapore?
Given how notorious loan sharks are for their tactics, why do people still borrow from them?
THEY NEED CASH DURING HARD TIMES
The advent of modern banking has not eliminated non-bank lending, even in a global financial center like Singapore, where more than 97 percent of people aged 15 and over have a bank account and the majority own a credit card, according to the 2017 World Bank. global financial inclusion data.
On the surface, Singaporean residents have no apparent problems with accessing banking services. But dig deep and you’ll find that some have limited options when a rainy day arrives.
Stock photo of some banks in Singapore’s CBD district (Photo: Jeremy Long)
About 8 percent relied on family or friends as their main source of emergency funds, although a large majority said savings were their main source, according to the same World Bank survey. In contrast, just 0.2 percent of people raised funds from a licensed bank, employer, or private lender for emergency use.
This is concerning when two-thirds of Singaporean households say they only have enough savings for six months if they lose their jobs, in an OCBC survey conducted in May.
Although the Monetary Authority of Singapore (MAS) implemented provisions for individuals to defer principal and interest payments on student, car and property loans earlier this year as part of COVID-19 measures, Singaporean workers who They have found themselves off needing credit to help them until their next job. In that void, there is room for unauthorized lenders to operate as usurers.
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RESTRICTIONS AND LOAN RULES
The problem also arises because legal restrictions on how much banks can lend mean credit to those who urgently need money may not be easy or cheap.
These intensive regulations on banks’ capital adequacy, risk management, and internal control systems to ensure the solvency of banks and the safety of the financial system are necessary, but they mean that banks must carefully assess and manage credit risk when lending cash.
Therefore, banks can require borrowers to provide collateral to guarantee their loans or restrict the loan-to-value ratio. They are less likely to loan money to someone with a low credit score.
People of all age groups borrowed the least, but those ages 18-24 showed the biggest drop when it came to asking for financial help. (Photo: Freepik / pressfoto)
If they do, they may require collateral or charge very high interest rates on unsecured loans; Just think of the high interest rates charged on unpaid credit card debt.
These costs, which can include minimal charges each month the money is borrowed, processing fees, and late fees, can add up and create a vicious cycle that traps relatively low-income workers.
While licensed lenders are another option, they may not meet the demands of a person in dire need of money. The Lenders Act limits the amount of unsecured loans that can be loaned.
A Singaporean with an annual income of at least S $ 20,000 can borrow up to six times their monthly income, but the limit is only S $ 3,000 for someone whose income is less than $ 20,000.
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HELP PEOPLE WITH SMALL INCOME GET FINANCIAL SUPPORT
Perhaps it is worth delving into the characteristics of someone who may be the target of such usurious operations.
While there is little public data on this, it is reasonable to assume that low-income individuals with little savings, a low credit score, and little recourse to friends and family who can lend them money, may cause them to seek alternatives that are not easily regulated. and quick access to loans.
When they need cash urgently, they may turn to loan sharks in desperation. This is especially because loan consumers these days can disguise themselves as a legitimate credit organization with professional-looking websites.
Such efforts often conceal their suspiciously less stringent lending rules that banks must protect themselves and borrowers from having too much credit on their hands.
Without such legal obligations and responsibilities, loan sharks seem to offer hassle-free applications and easy credit to lure unpretentious victims.
When these borrowers are in trouble, they are also reluctant to go to the authorities for help in resolving the dispute when it comes to illegal lending activity.
Fighting the stigma, these borrowers expose themselves to further extortion (eg, high accumulated interest rates) and violent debt collection tactics.
HOW TO GET A LOAN SHARK
Strong law enforcement and public education to suppress and deter illegal practices should be welcomed.
Singapore police officers arrest a suspect. (Photo: Hanidah Amin)
It is encouraging to see grassroots initiatives and online communities to help victims of loan-snatching activities emerge in recent years, including the Singapore Anti Loanshark Facebook group, the National Council’s X-Ah Long hotline. Crime Prevention and social service organizations that provide credit counseling.
However, these do not solve the underlying problem of demand for alternative sources of unlicensed and unregulated loans.
While it can be argued that the government can relax regulations so that banks and lenders can extend credit to this group, a relaxation of the financial system could be a double-edged sword if it encourages spending beyond one’s means.
Memories of the subprime mortgage situation in the US, which triggered a global financial crisis in the US, are still fresh. Policymakers should carefully weigh any potential impacts and assess whether it is worth it. take bigger risks.
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Where the MAS has recently tightened the rules in 2019 to lower the total cap on unsecured debt to 12 times monthly income to manage growing debt among Singaporeans, I can’t see how regulators will change gears now.
The advent of FinTech may expand the ways that people can seek credit, especially if MAS’s FinTech Regulatory Sandbox gains more traction.
Fintech companies, such as MoneyBank in Vietnam and Lendr in the Philippines, are engaged in microfinance small sums that banks generally do not lend to those who have no credit history, using big data to assess risk.
A better understanding of the gaps FinTech can fill, its methods, and the tradeoffs would benefit Singapore in the long run.
Perhaps having better information about the victims of illegal lending activities, their demographics and the circumstances that led them to borrow money can be the engine for authorities to devise strategies to deal with the scourge of loan encroachment, especially during these times. tough economic times where demand for aid may increase.
A woman buys Malaysian ringgit from a money changer in The Arcade at Raffles Place, Singapore. (Photo: Jeremy Long)
Understanding where the financial pressure points are, whether families borrow to fund a child’s educational needs, a medical emergency, or to overcome short-term cash flow challenges for a small business, could also help. the authorities to take a more social welfare approach to the problem. .
The massive arrests in recent months show the seriousness of the Government in applying the law; that should send a strong signal that illegal loans are not welcome in Singapore.
But perhaps it’s also time to review access to credit to see how we can help more people avoid the need to borrow from loan sharks altogether.
Christopher Chen is Associate Professor of Law at Singapore Management University.
