I have suggested a "community based" scheme to provide loans to families that are need money for their daily expenses due to loss of employment, high medical bills or other factors beyond their control. I have received some questions on how this scheme can operate. I will answer them:
a) Who provides the funds? The community (i.e. the Government)
b) Who bears the loss of bad debts? The community will have the right to place a lien on the assets, e.g. CPF savings, of the borrowers. If there are insufficient assets, the bad debts will be written off and will be borne by the community, i.e. the taxpayers.
c) Who decides on the people who should be granted these loans? Loan assessors working on the set of eligibility criteria.
d) What rate of interest should be charged on the borrowings? 1% to 3% higher than CPF interest rate.
This community based scheme will operate on principles that are different from commercial banks or loan sharks, and will still aim to make the borrowers responsible for repaying the loans. However, these loans should be provided at an affordable interest rate, so that the borrowers are not burdened with exorbitant interest payments.
This scheme requires responsible people to be loan assessors to carry out investigations into the financial situation before the loan is granted. The assessor has to interview the borrower and visit the family to make personal judgement (which is a skill that needs to be developed, as many Singaporeans prefer to decide on paper and avoid taking personal responsibility to make judgement).
This will provide an alternative to borrowing from loan sharks, leading to bankruptcy, petty crimes and other social problems.
Tan Kin Lian
Many developed countries do not need such a scheme because they provide unemployment benefit and also welfare benefits for very poor people. The benefits are sufficient to cover the basic living expenses.
ReplyDeleteIn Singapore, we have none of these benefits. So, we need at least a community based lending scheme that offer loans at low interest rate.
The absence of such financial support is the cause of the dependence on loan sharks. I suspect that loan sharks is more common in Singapore than in other developed countries.
Insurance agents tell their clients that they should borrow against their policy instead of surrending them.Is it the right thing to do?
ReplyDeleteWhere is the financial planning that we heard from MAS that these agents will do?
It is the failure of MAS to seriously implement and enforce this concept. It is encouraging product pushing and peddling so that they can glorify the caveat emptor maxim mooted in 2000. It is now so ingrained in the system that the insurance companies are competing on sales production and NOT on how many policyholders are financially independent.
Loan sharks work with insurance agents. The agents conspire with loan sharks to fleece their policyholders. Both loan sharks and agents win at the expense of the policyholders.
Good idea. The cost of administering these loans would be quite substantial, and thus unprofitable for the scheme. However, it doesn't mean that it shouldn't be done. This scheme would need to be highly automated.
ReplyDeleteAlso this scheme doesn't address the real problem of providing jobs to the unemployed. So having an unemployment benefits scheme in Singapore is potentially a good thing. It balances the way the government looks at creating employment.
ReplyDeleteSure, there will be high taxes, but it will bring balance to Singapore society.
If the govt can "legalise" gambling such as TOTO and 4D, they can also "legalise" illegal $$ borrowing.
ReplyDeleteBut the question is whether the PROFIT is big enough for the govt to "legalise" it? If not "illegal" loanshark problem will still persist becos of demand and supply issue.
The best part of the govt to solve this problem in a very short cut way is to "criminalise" the borrowers!
Wow, what a "brilliant" idea from the M$$ home team minister!!