Interest Rates for Loans Offered to SMEs under Government Risk Sharing Schemes vis-à-vis Commercial Rates
Ministry of Trade and IndustrySpeakers
Summary
This question concerns the interest rates for SME loans under government risk-sharing schemes and how they compare to commercial rates, as raised by Mr Leon Perera. Minister Chan Chun Sing highlighted programs like the Temporary Bridging Loan Programme and Enterprise Financing Scheme introduced to help enterprises manage working capital during COVID-19. He noted that over 95% of risk-shared loans in April 2020 featured interest rates between 2% and 4.5%, significantly lower than commercial rates of 6% or more. Minister Chan Chun Sing also referenced the MAS SGD Facility providing banks with 0.1% per annum funding, which is expected to lower SME borrowing costs to approximately 2% to 3%. Participating Financial Institutions have committed to passing on these lower rates, and ESG and MAS will continue monitoring the situation to ensure SMEs can access financing.
Transcript
7 Mr Leon Perera asked the Minister for Trade and Industry (a) what are the average interest rates or the range of interest rates for loans offered to SMEs under the Government risk sharing schemes; (b) how do these differ from interest rates for loans offered commercially without Government's risk sharing; and (c) whether the Ministry will consider requiring banks offering loans with 80% or 90% Government risk sharing to set interest rates at levels significantly below interest rates for non-Government-backed loans under similar circumstances.
Mr Chan Chun Sing: The Government introduced the Temporary Bridging Loan Programme (TBLP) and enhanced the Enterprise Financing Scheme – SME Working Capital Loan (EFS-WCL) Programme in the Unity Budget, to help enterprises cope with their working capital needs during the COVID-19 situation. The schemes were further enhanced in the Resilience and Solidarity Budgets. In addition, the MAS SGD Facility for ESG Loans was launched on 20 April 2020 for banks and finance companies. It provides them with funding for two years at an interest rate of 0.1% per annum, for the purpose of their loans to SMEs under the ESG loan schemes.
Under the ESG loan schemes, the interest rate of loans taken up by over 95% of the SMEs applying in April 2020 ranged from 2% to 4.5% per annum, compared to 6% or more for most other unsecured working capital loans to SMEs.
Following the introduction of the new MAS SGD facility, interest rates for such loans is expected to be around 2 to 3% for most borrowers.
Participating Financial Institutions (PFIs) have committed to pass on lower interest rates to borrowers. ESG and MAS will continue to monitor the situation to ensure that SMEs are able to access financing during this crisis.