Moneylending

A couple of weeks ago, there was an uproar over the news of students being tricked by illegal moneylenders into distributing business cards and flyers. The students were eventually caught by the police. A few weeks later, an article came up in the Straits Times about moneylending practices in Singapore. I was surprised to find that moneylending services were legalised in Singapore, and also at the extremely high interest rates they were allowed to charge. I feel that moneylending in Singapore has many negative effects, and in this blog post, I would like to share my view.

Firstly, many moneylending services prey on people who do not have knowledge about the potential pitfalls involved in moneylending. I recall that in the Straits Times article, there was an example of a Singaporean who at first only borrowed $1000 from a moneylender, but soon, his debt snowballed to $4000. I think that this shows how moneylending can completely wreck people's lives. Since the Singaporean is unable to pay off his debt, and no bank will lend him money due to poor credit history, his only option will be to borrow even more money from a different moneylender. This causes a domino effect, and his debt will only get larger.

Secondly, moneylending services take advantage of people of lower socio economic backgrounds. As compared to banks, moneylenders can charge interest of up to 17% for people with low salaries, and there is no limit to the interest they can charge for people with higher salaries. The interest for bank loans is no where as high, however they are only willing to lend money to people with a good credit history. Needless to say, these people do not include those of poor socio economic backgrounds. By legalising moneylending, there is an added pitfall that is very easy to fall into for them.

However, there is also a good point to legalising moneylending. By legalising moneylending, there will be a lot less illegal moneylending firms, because most people will then turn to legal moneylenders, instead of going to loan sharks. I feel that this is a definite benefit because of the many cases of loan sharks vandalising and even setting fire to people's homes.

In conclusion, I feel that legalising moneylending has more negative sides than positive, and I think that people need to know clearly exactly what borrowing money from a moneylender entails.