Reports from credit bureau will help improve their risk assessment before granting a loan
People in debt will find it tougher to borrow money from next Tuesday.
The launch of the Moneylenders Credit Bureau, will allow licensed moneylenders to provide information about borrowers’ loan and repayment records on a website.
Lenders will then be able to access credit reports from its website to improve their credit risk assessment before granting a new loan and deny loans to those who are borrowing beyond their means, the Ministry of Law said yesterday.
The site will also allow moneylenders to keep track of borrowers’ actions, such as whether they have taken out loans with other lenders.
A spokesman for the Ministry told The Straits Times that it will “monitor the situation for some time” to ensure it runs smoothly, before mandating the use of the bureau for all loan applications.
“Legislative changes will be required to effect this,” said the spokesman. “Licensed moneylenders are strongly encouraged to use the (bureau) to conduct credit checks on borrowers as part of responsible lending.
“They have an incentive to do so, to minimise default.”
It will cost licensed moneylenders 50 cents to purchase a credit report while borrowers can buy a copy for $1 to keep track and manage their own loans.
The bureau was first announced in 2014 as part of a slate of tougher new rules on moneylending, which include an interest rate cap of 4 per cent.
As of Feb 1, there were 170 licensed moneylenders in Singapore.
Mr Peter Tan, president of the Moneylender’s Association of Singapore, said the bureau may help to reduce the number of bad debts.
“Most people who go to moneylenders are not able to go to banks because they don’t have collaterals, or they have already exhausted whatever they can get from the banks, and they need more money.
“For borrowers, they have to face the stark reality that they may not be able to borrow any more money (if they already have debts).”
Ms Carol Tan, director of licensed moneylender Quick Credit, added: “Since the outstanding amount will also be reflected, this will enable us to discourage borrowers who are in debt and prevent them from overborrowing.”
Ms Tan noted that there is about a 10 per cent default rate among borrowers, and with the bureau, it will “definitely be reduced”.
But Ms Daphne Tan, director of Unilink Credit, believes that bad debts will increase in the short run before the situation improves.
“With the bureau, in the first couple of months, quite a number of people will be cut off from additional borrowing,” she said.
“Some people are just borrowing to cover up another loan, so there may be more bad debts. But this will help us monitor what kind of borrower this person is… and, in the long run, this will be helpful.”