World Economy

Singapore Relaxes Rules to Help SMEs Obtain Funds

The Monetary Authority of SingaporeThe Monetary Authority of Singapore

The Monetary Authority of Singapore announced on Tuesday it will relax some business restrictions on finance companies to help small- and medium-size enterprises obtain financing.

This comes a day after the central bank announced that it would take measures to strengthen the financing channels for next-generation Asian growth companies and drive innovation through technology infrastructure, to support the Committee on the Future Economy’s recommendations, CNA reported.

Currently, there are three finance companies—Hong Leong Finance, Sing Investments and Finance and Singapura Finance—licensed by MAS to take deposits and loans. They have combined assets of S$16 billion and accounted for just under S$7 billion ($4.94 billion) in outstanding loans to SMEs in the second quarter of last year.

In a statement, MAS said it would be relaxing some of the business restrictions that currently apply to them in order to enhance their role in SME financing.

The limit for aggregate uncollateralized lending will be raised to up to 25% of the finance companies’ capital funds, from the current cap of 10%. The aggregate limit for uncollateralized lending to a single borrower will also be raised to up to 0.5% of the capital funds of the finance company, up from the current cap of 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, the central bank said.

In order to allow them to provide more comprehensive credit and deposit services to SMEs, finance companies will also be allowed to offer current accounts and chequeing services to business customers, as well as join electronic payment networks like Interbank GIRO, Fast and secure transfers and Secure Transfers and Electronic Funds Transfer at Point of Sale.

To safeguard prudential standards, the central bank says it will require these companies to enhance their corporate governance and risk management, including imposing stricter rules on related party transactions and limits on exposures to the property sector.

The regulatory changes will be implemented in phases starting this year.

In addition, MAS said in the statement that it will liberalize its existing policy of not allowing foreign takeovers of finance companies.

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