Wednesday, December 30, 2009

Loan shark menace

A reader wrote to the Straits Times that there is a need to find a solution for people in need of cash, so that they do not have to rely on loan sharks. For these people, the loan sharks are the only source of cash, even though the interest rates are exorbitant, and the loan sharks have to resort to criminal activities to enforce the repayments.

Some people resort to loan sharks due to gambling debts (which can be avoided). Others are forced to borrow money due to unemployment or big medical bills.

I encourage people to have personal savings, so that they have money to draw down during these emergencies. There is a case for the community to provide funds for people who are in need of temporary cash due to factors beyond their control. They are required to pay back the borrowings, but the rate of interest should be kept modest.

Many developed countries have unemployment benefits, which are given to people who lose their jobs. The benefit is paid for a certain period, such as 12 months. Beyond that, they can receive a lower amount of welfare benefits to survive.

My proposal for a community-based borrowing is less generous that the safety net available in the advanced countries. But, it is better than a "loan shark" scheme that is practiced here.

Tan Kin Lian

16 comments:

Anonymous said...

Yes, there is a strong need to have some personal savings for rainy days. But how many people are doing so? They prefer to spend like no tomorrow, buying branded goods, splurging on luxuries etc.

Alfred said...

another way is to encourage microloans. obviously the big banks here will not be interested in these. but the problem is how the operator manage the default risk.

Anonymous said...

If there is a will there is a way.

example: Kidney donar legally and fairly compensated after a rich man, Mr. Tang, was caught paying off a Indonesian for his kidney. [Thinking aloud, I wonder will Govt change the system if a heartlander did such a thing. Most likely the heartlander will hit hard with the the law]

With the opening of Casinos, it is going to be a big problem. Maybe the Govt will push the problem to the police to clean up loan shark business and tell the heartlander not to visit casino or visit at their own risk as they cannot "micro-manage".

This is what we get for having the highest paid Minister in the World.......

S'pore USA
PM=S$3.2 mil President=US$250,000
Population=3.5 mil 300 mil

Sgp paid PM 10x more than US President to look after a population 100x less than USA to deliver a performance of "MAS cannot micro-manage Banks & FIs" to >10,000 Singaporean victims while HK MAS secured a 60-70% for 40,000 HK investors due to HK FIs gross misrepresentation.

So, MOST EXPENSIVE SALARY DOES NOT MEANS BEST PERFORMANCE AS FOR THIS CASE, THE SGP MAS IS CLOSE TO DOING NOTHING ie LIP SERVICE AS TALK IS CHEAP.....

Parka said...

This is sort of an economics question.

If you want to stop loan sharks, just provide competition that rivals their primary service -- easy access to money no-questions-asked style.

Because there's demand for such services, there's supply.

Anonymous said...

Can micro loans, for any loan for that matter, rid loansharks?

Addicted gamblers would simply take advantage of such loans, and when they could not borrow anymore, resort to loansharks.

Would this not merely delay the problem with loansharks, and at the same time, increase the debt problem?

A Singaporean said...

The super low interest rates coupled with consumerism only encourage people to spend like no tomorrow...

Garrett said...

p2p lending might be a viable alternative to loanshark money. It has taken off in recent years in the USA, see:
http://www.prosper.com/
http://www.lendingclub.com/

Without a doubt, the feasibility of applying such a system here is going to be tough, but it may work out with the enough support and a good infrastructure.

A brief primer on p2p lending.

Basically individuals (like you and me) lend out money to other individuals at a competitive rate (presumably lower than the interest rate from banks, credit cards, EZcash, etc.) p2p lending finds its niche in small sums of money (say maybe 10k-50k), which is around the range of loan shark money. Lenders get to benefit as they earn interest when the principal is repaid. Borrowers benefit as they can borrow small sums at lower interest rate. Main hurdle here is how to enforce repayment and to come up with a system to characterize borrowers on their likelihood to default. In the USA, there is a thing such as Credit Rating... unfortunately there is nothing like this here.

Shawn said...

firstly, we must understand why people borrow $ for. v often these people who borrow dun just stop after borrowing once.

have anyone of u lent $ to u friends who promise/ swear that he will return u the $ but yet after a decade still an empty promise.

There is no simple solution to it cos getting back the sum of money lent will also nt be easy. Think about it... how much $ can we afford to lent w/o getting it back.

Anonymous said...

Who does not live with borrowed money? We are still paying housing loan, car loan and expenses charged to credit card are actually using borrowed money.

Anonymous said...

Remember what ah-nan said in the movie "Money no enough"

"we are doing a service to the people when banks do not!"

sarcastically true don't you think? Banks only lend to ppl who can pay back and mostly actually have money.

How about those who really need it? In our current society, we need another solution.

Cardin Lee said...

I think there is still another way for people to seek help for financial assistance from the government, but a lot of times bureaucracy bogs it down.

There are just so many clauses and criteria, originally meant to deter and filter those who are just hoping for a quick buck, that many needy people are unable to apply successfully. I think that is where help should really be rendered.

shawn said...

question is how to get back the borrow tat is lent?

r we prepare to write off?

how much money can we afford to write off?

whr to get funding and how long can the fund last?

Anonymous said...

The most fundemental rule of borrowing is to return on time or face the consequences. No one force anyone to sign on the dotted line. Unlike Mini Bond Saga, the borrower fully know what they are getting into when they borrow from the loan shark.

My neighbour borrowed from loan shark and then rented his whole unit out to some China people. Using the rent, he conformtably rented another unit for his fsmily and himself. When the loan shark was unable to contact them, they started targeting on the neighbours including me. One of my neighbour manage to contact the borrower and asked him to come back and settle BUT instead of being apologetic he just remarked, "Sorry loh..." and hung up leaving us, neighbours to face the loan sharks.

I strongly feel that this kind of irresponsible people should be serverly punish!!!

Anonymous said...

'Others are forced to borrow money due to unemployment or big medical bills."

The above problems could be reduced if we make unemployment insurance and medical insurance as compulsory and affordable to all the working adults. These basic insurances should be run by a non-profit organisation(such as CPF board).

January 01, 2010 8:42 PM said...

I disagree with 'forced to borrow due to unemployment or big medical bills'...I strongly believe in living within your means.

My comment on my neighbour(January 01, 2010 8:42 PM) definately do not fallinto this category. We are staying in 5 room flat! If really in need to money then this neighbour should down-grading instead of borrowing from loan shark and then run away; leave the neighbours to clear his shit!

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