Sunday, January 17, 2010

Singapore sees (some) sense over loan shark problem

Despite having floated the idea of making it a criminal offence to borrow from a loan shark, the Singapore government has finally seen sense and accepted that such a move would drive the problem deeper underground.

Although Singapore trumpets its low-crime status, the city-state has been plagued by a surge in loan shark-related violence and harassment since the credit crisis made it even harder for people to get access to finance.

On Tuesday, the government finally unveiled the details of its long-awaited Moneylenders (Amendment) Bill, which is designed to crack down hard on loan shark syndicates. The new law will toughen the penalties for those carrying out loan sharking as well as creating new offences for those who assist the gangs and bringing in measures designed to target the gang leaders by freezing their assets.

These supply-side measures are all well and good but the government still doesn't appear to understand that it is demand that is driving the loan sharks.

When I went out into the heartlands of Singapore last year to investigate the problem, I spoke to a number of social workers who assist those who cannot repay loan shark debts. Their key message was two-fold:

1. Many loan sharks are not violent thugs so much as ordinary businessmen whose trade happens to be illegal.

2. Although some loan shark debtors are gambling addicts who are deliberately targeted by unscrupulous Ah Longs - as they are known - most borrowers are willing participants, whether they need the money for necessities such as food/rent/mortgage payments or for a new business venture.

In others words, there is a genuine demand among Singapore's less well-off citizens for access to small amounts of credit that is not currently being filled by banks or other bona fide lenders.

But, in an eight-page speech delivered to Parliament on Tuesday, Ho Peng Kee, senior minister of state for law and home affairs, dedicated just two paragraphs to the question of demand

While Ho said the government empathised "with those who face an unplanned, temporary and short-term financial squeeze," he stressed that the government was not going to do anything to help them, other than telling them not to borrow from Ah Longs.

"I urge people with a genuine financial need not to be tempted to take what they perceive as the easy way out by borrowing from loan sharks. Instead, they should tap other channels – community-based ones, commercially-driven ones as well as grassroots-related ones - for help. Family members, relatives and friends can also lend a helping hand to help these unfortunate ones tide over their temporary financial squeeze."

In other words: on yer bike.

There was an interesting piece in last week's Time magazine about how Grameen Bank, the Bangladeshi microfinance pioneer, was looking to expand in America.

Hard-up Singaporeans could also do with a bit of microfinance it seems. It might even help to promote entrepreneurship at a time when productivity has been falling in Singapore.

When I was in Bangladesh last year, I met a number of people working in microfinance who told me that the industry had reached saturation point - that there was too much cash floating around and not enough decent people to lend it to.

Maybe they should look to Singapore, so long as the government, which has shown a reluctance to open up the domestic banking sector to foreign companies, lets them.

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