Thursday, July 22, 2010

Reining in unethical moneylending

THE unusual urgency with which a housing bill was expedited through Parliament this week was well warranted and welcome - even (or perhaps especially) if it sounds the death knell for a small but insidious industry.

In going for the roof over the borrower's head, Singapore's moneylenders have been no less pernicious than latter-day Shylocks - indeed, every bit as artful and exploitative as the notorious Shakespearean character who coolly sought, as loan collateral, a pound of flesh. With the law amended to close an unfortunate loophole, Singapore's moneylenders - or legalised loan sharks, as it were - can no longer avail themselves of the sales proceeds when desperate HDB flat owners resort to cashing out their homes for quick funds.

For the lenders, this is a sudden turn of events leaving them lamenting their fate, with nary a trace of guilt nor any sense of wrongdoing. And this is an industry officially represented by an association - the Moneylender's (sic) Association of Singapore - that states, among its five objectives, a desire not only 'to project moneylending as an important and integral part of the business of financing individuals and businesses' but also 'to advocate ethical practice in the moneylending industry'.

No doubt, moneylending (legal and illegal) plays a key role in consumer financing, and indeed in small business financing as well. The average person sometimes finds it hard to get a bank loan to pay off urgent bills or debts, especially if he or she is unemployed or a low-income earner. But, while the moneylending association has a self-declared aim of advocating ethical practices, its president felt free to explain, in a newspaper report in January, why his members were targeting HDB sellers in need of quick cash. Indeed, ads by moneylenders were essentially saying: 'Only HDB sellers need apply'.

David Poh, the association's president, was reported to have said: 'If they take a personal loan which is based on their income, they may lose their job at any time, so it's not so secure for us.' Liquidating a HDB flat, on the other hand, virtually guarantees repayment, as the moneylenders - who would have lodged a caveat on the flat - get the first bite of the sales proceeds. The number of HDB resale applications with caveats lodged by moneylenders in just the first six months of 2010 has already exceeded the 2009 total of 546. The lenders might have insisted there was nothing unethical about this - indeed, it was entirely legal, until this week - but there was also collusion with housing agents who, for a fee, would refer flat sellers to lenders.

New rules in May ended the lucrative careers of lenders moonlighting as housing agents and vice versa, and a welcome new bill to regulate housing agents is on the cards. It remains to be seen how many of the several hundred moneylenders in town will actually close shop. If those weeded out are the firms that cannot thrive ethically, it would be no loss at all. And if the culling makes room for ethical, institutional microfinance to take root here and displace loan sharks, all the better.

Source: Business Times, 22 Jul 2010

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