SAGE Talk: Initial Challenges for Credit Counselling Singapore (Part 3)

Reminiscences of CCS first Chairman. This is the second of a series of articles by Mr Kuo How Nam (founding member and former Chairman of Credit Counselling Singapore). How Nam’s articles are scheduled to be published on first Fridays of the month.

Today I would like to highlight the problems CCS had in the beginning.    

While the general idea of having a credit counselling organisation was well known, the big problem was that there was no information on what was happening on the ground in Singapore.  We did not know what types or amounts of debts individuals had in Singapore, their overall financial position, their ability to pay and what proposals would be acceptable. 

The average interest rates charged on credit card debts was 24% per annum.  Defaulters would be faced with penalty interest, late payment charges, and over limit charges, etc.  Compounding monthly, the outstanding amounts can increase very fast.  In fact, studies showed that as much as half the outstanding debt amounts could be due to these charges.  Obviously, in addition to a longer repayment period, any restructuring proposals would have to see a drastic reduction of high interest rates, otherwise repayments would be unmanageable.  We had to arbitrarily adopt some low interest rates to calculate loan repayments for our earliest cases.  This was without commitment by the respective Financial Institutions (FIs) but later, the FIs agreed to some low interest rates with the formalisation of a Debt Management Programme for the industry.  

The approach to a debt restructuring proposal would be to start off with a debtor’s income, work out his monthly budget where he could sustain himself and his family and then ascertain a residue amount that would go towards loan repayments.   

It was not difficult to work out a monthly budget which would include grocery, utilities, school fees, transportation, and outside meals, plus some contingencies.  In the case of a couple working with young children, we could include a domestic helper.  In many instances, there were aged parents who require some financial support.  While we had initial difficulties agreeing with the FIs on the budget, but later we successfully obtained their agreement on a list of expenses depending on the number and age of children and dependents, the type of housing and expenses for special needs dependent.  Since the Industry agreed on the estimates, there was no need to haggle, and we could refer and add up the expenses.  As repayments are expected to be over several years, a reasonable budget would give some breathing room to the debtors.  

The amount of debts owed by many distressed debtors was an eye opener.  The average debts owed by our help seekers was around $70,000 - $80,000, owed to 6-7 creditors.  The average take home pay was about $3,000, implying a debt burden of >24 months income!  With a 3% minimum monthly repayment, no wonder they could not pay their debts.   

So even with an extended loan repayment period lasting several years and a reduced interest rate, many debtors could not qualify for the Debt Management Programme.  Their financial position was just out of proportion.  All parties involved had to be reasonably satisfied that any loan proposal was doable.  Overall, we had to turn down about 50% of all applications as they would not meet the expectations of the creditors. 

This article was contributed by Kuo How Nam.

Published 2 September 2022.