While licensed moneylenders in Singapore admit there is a need to cap loan interest rates, they argue the four percent monthly rate put forward by an advisory committee is rather unreasonable, reported the media.
They insist they should be allowed to charge 15 to 20 percent per month in order for them to survive.
Notably, the committee announced on Monday five draft recommendations, which include the four percent monthly rate as well as limits on loan amounts.
Formed in June, the 15-member panel, initiated by the Law Ministry, was tasked to review the licensed moneylending industry in view of complaints relating to high interest rates and excessive borrowing.
Commenting on the four percent figure, Moneylender’s Association of Singapore’s Assistant Secretary Wayne Ng said the proposal shocked moneylenders.
Ng revealed he made a presentation to the committee two or three months ago in which he detailed the costs of operating a moneylending business.
“I don’t know how the panel came up with four percent even after we shared our operating costs. Four percent is totally not feasible.”
For example, Ng, who runs a moneylending company in the heartland, said he pays each of his three employees an average salary of $2,000 a month on top of the $7,000 monthly rent that he pays.
“Assuming I managed to loan $100,000 in one month and everyone pays me back in full within the month, at four percent interest I would make a gross profit of S$4,000. That’s not even enough to cover my rental,” he said.
Meanwhile, David Poh, the association’s president, said he will hold a meeting with all his members to consolidate data from them, which he will submit to the committee for review.
Poh, who is on the committee, noted moneylenders generally serve high-risk borrowers who are unable to secure loans from banks, with at least 20 percent of them defaulting on payments.
“It’s a high-risk business and moneylenders rely on short-term interest gained from the loans. Hence, they would need to charge a higher interest rate to sustain their businesses,” said Poh.
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