Regulation of Licensed Money Lenders' Loan Repayment Terms for Low-income Borrowers
Ministry of LawSpeakers
Summary
This question concerns Mr Kwek Hian Chuan Henry’s proposal to mandate that licensed moneylenders allow low-income borrowers with unsecured loans under $15,000 to opt for partial repayment. Minister K Shanmugam replied that legislating such mandates is inadvisable as lenders might price in risks, potentially restricting credit access for high-risk individuals. He noted that borrowers and lenders can already mutually agree to restructure repayments, while the Professional Service Handbook encourages lenders to assist those in difficulty via restructuring or Social Service Agency referrals. Minister K Shanmugam emphasized balancing credit access with borrower protection and highlighted that the Registry of Moneylenders is available to assist with repayment queries. This strategy prioritizes negotiated flexibility and professional guidance over rigid legislative changes that could inadvertently increase borrowing costs or constrict credit.
Transcript
46 Mr Kwek Hian Chuan Henry asked the Minister for Law whether the Ministry will consider amending legislation and mandate licensed moneylenders to allow borrowers from low-income backgrounds and who have borrowed unsecured loans of less than $15,000 opt for partial repayment at any point during the loan duration, so as to facilitate repayment and avoid recurring interest and late payment fees.
Mr K Shanmugam: The aim of our regulatory regime for licensed moneylenders is to maintain a balance between allowing individual borrowers reasonable access to credit while ensuring that borrowers, particularly lower-income borrowers, are adequately protected. Licensed moneylenders bear the risks of lending and are incentivised in a competitive market to negotiate restructuring of repayments, taking into account the borrower's risk profile.
Borrowers and licensed moneylenders are able to restructure loan repayments, subject to mutual agreement. This can include earlier repayment of loan instalments to reduce the interest incurred, or extension of the loan tenure to reduce each remaining loan instalment and avoid late payment fees. Legislating to mandate specific arrangements is generally inadvisable. For example, mandating to allow early repayment of loans may benefit some borrowers, but may also result in moneylenders pricing in the early repayment risk. Mandating extension of the loan tenure may also result in moneylenders pricing in this risk and potentially constrict access to credit to borrowers with higher-risk profiles.
The Ministry has instead encouraged licensed moneylenders to, as set out in the Professional Service Handbook for Licensed Moneylenders, assist borrowers with financial difficulties by: (a) restructuring the loan repayment to suit the borrower's financial situation; or (b) referring the borrower to a Social Service Agency for assistance in restructuring the loan repayment or for consideration to be placed on a debt consolidation scheme.
Borrowers who have queries on options available to them may also approach the Registry of Moneylenders.