The Monetary Authority of Singapore (MAS) has announced regulatory changes to boost the resilience of finance companies and enhance their ability to provide financing to small and medium-sized enterprises (SMEs). The financial regulator said that some finance companies fill an important niche in providing access to capital for SMEs, complementing the role of banks. To enhance finance companies’ role in SME financing, MAS will relax some business restrictions that currently apply to them. MAS will be phasing in these changes during the year.
There are three licensed finance companies today with around S$16 billion in combined assets. In Q2 2016, finance companies accounted for just under S$7 billion of outstanding SME loans.
It was interesting to note that MAS will now allow non-bank entities the ability to provide current accounts and traditional bank services like checking.
Ong Chong Tee, Deputy Managing Director, MAS, commented on the rule changes;
“The liberalisation of finance companies will facilitate their efforts to invest in new capabilities to enhance their core SME financing business. These changes are part of MAS’ ongoing efforts to ensure that our financial sector continues to be able to support enterprise development.”
These changes include:
- The limit on a finance company’s aggregate uncollateralized business loans will be raised to up to 25% of its capital funds, from the current 10%. The limit on uncollateralized business loans to a single borrower will also be raised to up to 0.5% of capital funds, from the current S$5,000. These changes will better enable finance companies to serve their SME customers, many of whom require unsecured credit for working capital needs.
- Finance companies will be allowed to offer current account and chequing services to their business customers. They will also be allowed to join electronic payment networks, including Inter-bank GIRO, Fast and Secure Transfers (FAST) and Electronic Funds Transfer at Point of Sale (EFTPOS). These changes will enable finance companies to provide more comprehensive credit and deposit services to SMEs.
- MAS will liberalise its existing policy of not allowing a foreign takeover of a finance company. This will accord finance companies greater flexibility to explore strategic partnerships and innovative business models that can strengthen their SME financing business.
MAS said it will retain other regulatory restrictions on finance companies to limit the business risks borne by finance companies and encourage them to remain focused on serving the domestic SME market. MAS will also require finance companies to enhance their corporate governance and risk management. This will include stricter rules on related party transactions and limits on exposures to the property sector.