Microfinance Singapore style
Today I chanced across Leong Sze Hian’s article on TOC today on unsecured loans in Singapore made by POSBank:
A local bank has been offering unsecured loans to those earning between $20,000 and less than $30,000 per annum.
After factoring the 3 per cent processing charge and 1 per cent insurance fee, the effective rate for a one-year loan is actually 25.91 per cent.
This is even higher than the 24 per cent charged on credit cards.
A few days back I wrote a post on microfinance and sub-prime loans, prompted by a WSJ report on microfinancing in India. Of course any direct comparison would be illegitimate since these POSB loans are offered to those earning between $20k and $30k a year, compared to those in India and other poverty-stricken sectors. Nevertheless, a striking similarity between both are the insanely high interest rates charged. The WSJ article reported a 24% to 39% effective interest rate charged to debtors.
Further, Leong Sze Hian pointed out that a previous cap of 18% interest appears to have been revoked:
Before the regulations were changed to allow banks to offer unsecured credit to those earning between $20,000 and $30,000 this year, the loans that these borrowers could access were from moneylenders and pawn-brokers, which had a cap of 18 per cent per annum on the interest that can be charged.
With interest rates at historical lows now, why are banks allowed to charge such high interest on unsecured credit, without any interest cap?
Why are banks allowed to profit on the misery of their clients without outright disclosure of interest rates? Singaporean Skeptic has the answer:
Never mind that the bank is suppose to do its job by ensuring the documents are legitimate! Because in Singapore, the only protection is for the institutions and not the average person.
And of course let’s not forget the outcome of the minibond saga so far.