Be fair to borrowers and lenders

SINGAPORE - Moneylenders are proliferating in many HDB neighbourhood town centres - testimony to the existence of many low-income people who lack financial means and adequate savings to tackle emergencies and unexpected shortfalls ("Lending cap 'could drive borrowers to loan sharks'"; last Thursday).

A distinction must be made between borrowers who can repay the loans and those who have no capacity to do so.

The latter often have unsustainable lifestyles and take on debts that can only escalate; they need to be prevented from harming themselves.

Moneylender loans are usually small and repayable over a couple of months, with weekly instalments.

The main profits for moneylenders come from penalty and overdue charges as well as administration and collection visit fees. For example, moneylenders can make several daily collection visits at $50 or more per trip.

It is not surprising that many moneylender loans are designed to fail as borrowers receive their salaries only monthly.

Defaulting borrowers are then subject to hefty charges and often directed to other moneylenders. As a result, they end up with more debts.

We must cap the total

amount of loans that can be obtained from moneylenders to prevent over-borrowing and exploitation of this vulnerable group.

This requires a database to monitor total debts. We could make use of the existing credit bureau infrastructure or have the Government set up such a facility.

We should also limit the charges that can be levied on defaulters. We recognise this is a high-risk group. Borrowers

may take advantage of the inability of moneylenders to take legal action to recover small loans, and will respond only to pressure and fear of punitive charges.

However, we should strive for a balanced situation that is fair to both borrowers and lenders.

Lastly, there is a pressing need to regulate the activities of debt collectors. Creditors have increasingly outsourced collection efforts to external agencies, and it is largely an unregulated industry.

There are stories of debt collectors harassing and intimidating borrowers at unreasonable hours during the day and night. People have lost their jobs as a result.

Legislation may be the answer to put a stop to such unscrupulous activities.

Kuo How Nam

President

Credit Counselling Singapore

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