Nov 25, 2009
ERADICATING LOAN SHARKS
Offer safer avenue for cash-strapped
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WHILE the Government takes steps to eradicate loan-sharking activities by increasing penalties ('Tougher law on loan sharks', yesterday), we cannot deny the existence of a growing pool of desperate individuals who are prepared to pay exorbitant interest rates and risk harassment for a cash loan.
Not every individual who borrows from a loan shark is a problem gambler. Credit Counselling Singapore's (CCS) figures suggest that some 25 per cent of debtors in financial trouble cite gambling as a major cause.
The fact is that there are many individuals who face urgent cash needs but are unable to obtain these from the legitimate lenders in the market.
Unsecured loans had for many years been available only to people who earned over $30,000 annually. In recent years, the hurdle has been lowered to $20,000 per annum, but with a credit limit of two months' salary.
Banks are now also allowed to lend up to $500 on a 'no questions asked' basis, but this amount is too low to be commercially viable.
The safeguards put into place to prevent access to easy credit have, therefore, generally excluded a segment of our population from legitimate sources of finance - thereby driving them into the waiting arms of loan sharks.
An in-depth review of our credit policies should be done to consider the alternatives to individuals who are in need of small loans to tide them over unexpected emergencies and shortfalls in their budgets.
We cannot presume that such individuals are all credit risks, although there would probably be a higher debt write-off experience. Banks should be allowed to decide the level of risks they will accept and to price the product accordingly to make this a viable proposition.
While the interest rate will probably be higher for such loans, it will not be anywhere near to what loan sharks are charging. Some safeguards can be considered to limit the total borrowing from individuals, but at least more individuals will have access to the legitimate credit market.
If rules are relaxed further and banks are still unprepared to serve this segment, then we should consider seriously the establishment of a cooperative or institution that will be tasked with providing small emergency loans at affordable prices to individuals. This can be a social enterprise set up on a non-profit basis.
Kuo How Nam
President
Credit Counselling Singapore
ERADICATING LOAN SHARKS
Offer safer avenue for cash-strapped
<!-- by line --><!-- end by line -->
<!-- end left side bar --><!-- story content : start -->
WHILE the Government takes steps to eradicate loan-sharking activities by increasing penalties ('Tougher law on loan sharks', yesterday), we cannot deny the existence of a growing pool of desperate individuals who are prepared to pay exorbitant interest rates and risk harassment for a cash loan.
Not every individual who borrows from a loan shark is a problem gambler. Credit Counselling Singapore's (CCS) figures suggest that some 25 per cent of debtors in financial trouble cite gambling as a major cause.
The fact is that there are many individuals who face urgent cash needs but are unable to obtain these from the legitimate lenders in the market.
Unsecured loans had for many years been available only to people who earned over $30,000 annually. In recent years, the hurdle has been lowered to $20,000 per annum, but with a credit limit of two months' salary.
Banks are now also allowed to lend up to $500 on a 'no questions asked' basis, but this amount is too low to be commercially viable.
The safeguards put into place to prevent access to easy credit have, therefore, generally excluded a segment of our population from legitimate sources of finance - thereby driving them into the waiting arms of loan sharks.
An in-depth review of our credit policies should be done to consider the alternatives to individuals who are in need of small loans to tide them over unexpected emergencies and shortfalls in their budgets.
We cannot presume that such individuals are all credit risks, although there would probably be a higher debt write-off experience. Banks should be allowed to decide the level of risks they will accept and to price the product accordingly to make this a viable proposition.
While the interest rate will probably be higher for such loans, it will not be anywhere near to what loan sharks are charging. Some safeguards can be considered to limit the total borrowing from individuals, but at least more individuals will have access to the legitimate credit market.
If rules are relaxed further and banks are still unprepared to serve this segment, then we should consider seriously the establishment of a cooperative or institution that will be tasked with providing small emergency loans at affordable prices to individuals. This can be a social enterprise set up on a non-profit basis.
Kuo How Nam
President
Credit Counselling Singapore
