For people who might not have savings and run into cash issues, traditional lending options may not be a possibility. At the same time, domestic workers cannot look for sources of income other than their main work. This can lead them to seek loans from unlicensed lenders known as loan sharks, who may resort to harassment or embarrassing tactics if debts aren’t repaid.
As an employer, the burden of payment for outstanding debt falls back on you in these cases. Therefore, it’s important to protect both yourself and your helper from these situations.
Verify their loan source
In order to avoid being caught in an unwanted agreement with loan sharks, make sure that you and your helper are aware of their basic tell-tale signs. The Moneylenders’ Act looks to protect borrowers from loan sharks and sets out requirements for licensed moneylenders to follow.
Generally, you can identify loan sharks based on their deviations from these rules:
1. Using illegal advertising channels
Licensed lenders are required to limit their advertising to business and consumer directories, their websites, or print advertisements on their premises. Anyone offering you a loan over text message, email or social media is likely to be unlicensed.
2. Lacking a physical place of business
A loan contract is required to be reviewed and verified in person, with the principal being given by hand. If your lender doesn’t indicate physical premises, it is unlikely that it is operating legally.
Check their loan conditions
Licensed moneylenders are restricted in the interest rates and fees that they can set on their loan amounts. In comparison, loan sharks tend to offer easy credit but will charge exorbitant amounts in case of late repayment, or may charge high upfront fees that they can profit from.
In Singapore, regulation limits the loans that lenders can provide to $500 for foreign workers earning under $10,000 per year, so that they are able to repay both the principal amount and any interest or borrowing costs. Make sure that you or your helper check that the loan is within these limits, as loan sharks can offer higher illegal amounts that your helper might not be able to repay.
Organisations such as Arise2care provide debt counselling and a range of resources and information for those looking to escape or avoid illegal lending.
Have an open conversation about other lending options
Discussing finances can be a difficult conversation to have. Sitting down with your helper to understand their financial situation can make sure that you support them in the way that they need.
At some point, your helper may come to you asking for a loan or an advance on their salary. Singapore regulation doesn’t specifically address this issue, meaning that this is something to discuss with your worker and that you can do if you feel comfortable and understand how they will use this loan and how they plan to repay you.
As this is done at your own risk, some key points you can agree on are:
The sum of money that you lend to your helper
How the money will be used by your helper
What time period the loan will be paid over
What sum your helper will repay each month
Whether you expect your helper to pay interest in addition to the money that you lend them, or to provide something that they own as security in case they aren’t able to repay the loan
Boosting your helper’s financial independence
A great way to support your helper towards financial resilience is by increasing their financial literacy and independence. Encouraging your helper to make the most of money management tools such as JiPay can be another way to help them gain greater control and oversight of their finances, and limit their need for difficult borrowing options.
About JiPay
JiPay is an app for families to manage their helper's and kid's expenses.
It comes with a free prepaid Mastercard for your helper to do your shopping.
Click here to get the app!