FINANCE COMPANIES BILL

Order for Second Reading read.

3.42 p.m.

The Minister for Finance (Dr Goh Keng Swee): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

This Bill seeks to license, and impose minimum standards on, finance companies which accept deposits from members of the public. Heretofore, such companies did not have to comply with any requirements, save those under the Companies Ordinance. Inasmuch as these companies are custodians of the savings of individuals, it is imperative that their operations should be subject to Government supervision in much the same way as banks and insurance companies are. As a rule, the role of finance companies as financial intermediaries is limited to the mobilisation of domestic savings to finance the purchase of consumer durables. In the absence of proper supervision, however, these companies could turn into vehicles for risking household savings on speculative ventures of the directors.

There are two limbs to the definition of "financing business" given in clause 2 of the Bill - (i) borrowing money from the public by acceptance of deposits and issuing documents acknowledging indebtedness and undertaking to repay the money on call or after an agreed maturity period; and (ii) lending money to the public or to a related company.

With the coming into force of this Bill, no financing business shall be transacted by a company unless it is a public company and is in possession of a licence granted by the Commissioner for Finance Companies who shall be appointed by the Minister. One of the conditions for the issue of a licence is that the paid-up capital of a company shall not be less than $500,000. The Bill contains transitional provisions enabling exemption of existing finance companies from this requirement. It also allows the licensing of unincorporated firms, such as pawnbrokers who are now engaged in financing business, on condition that they incorporate themselves into public companies within three months.

A finance company is prohibited from engaging in trade or investing more than 25 per cent of its capital and reserves in other undertakings. Nor can it acquire immovable property otherwise than for the purpose of conducting its business. Unsecured advances are subject to a maximum of $1,000. There is also a prohibition on a finance company dealing in its own shares. Existing finance companies who have so entered into any of these prohibited transactions are allowed six months, subject to extension by the Commissioner, in which to liquidate such transactions.

Every finance company is required to maintain a reserve fund. This Bill imposes restrictions on the declaration of dividends to shareholders until a company builds up its reserve fund equal to its paid-up capital. A prescribed percentage of a finance company's deposit liability shall be held in liquid assets comprising legal tender, bank balances, money at call, and Treasury bills. Here again, existing finance companies are allowed a six months' period of grace to meet this requirement.

The Minister is empowered to prescribe maximum rates of interest payable on deposits and chargeable on advances, the maximum amount of advances which may be made to any person or class of persons, the maximum percentage of total assets that a company may hold in particular types of advances, minimum down payments and maximum maturity periods for loans or advances. The Minister may also prescribe reserves to be maintained with the Accountant-General.

The Bill provides for periodic inspection by the Commissioner of the books and accounts of a finance company. The Commissioner is also empowered to obtain such information and data as he may require for the proper discharge of his functions. If a finance company contravenes any provisions of the Bill or carries on its business in a manner detrimental to the interests of its depositors or becomes insolvent, the Commissioner may revoke its licence. There is also provision for appeal to the Minister on the Commissioner's decision to revoke a licence.

In the event of a winding-up of a company, the depositors shall be deemed to be holders of debentures secured by a floating charge over all the property and undertaking of the company. The liquidator of the company is enjoined to inform every debtor of the company and to require him in writing to redeem within three months any property he had deposited with the company as security.

Co-operative societies, banks, and the Post Office Savings Bank are exempted from the provisions of this Bill.

This Bill has been drafted with the assistance of an expert sent by the International Monetary Fund. It was the intention of the Government to send this Bill to Select Committee so that the views of the public and those whose interests are directly affected by the Bill may have opportunity of expression. Unfortunately, in the last few months there has been a very rapid increase in the number of finance companies. This proliferation of finance companies can hardly be looked upon with equanimity. Members will recollect that in 1962 it was necessary to legislate for the control of mushroom insurance companies. Many of these were of dubious character and in the process of liquidation, large numbers of innocent persons who had placed their money with these insurance companies suffered losses. I am not suggesting that all or any of the finance companies now in operation are of the same class as the insurance companies. I know for a fact that a number of finance companies have impeccable backgrounds. Unfortunately, I cannot say this for all of them.

In view of the very rapid growth in the number of new companies, it is necessary to pass this Bill without reference to Select Committee so that proper control may be established and that future proliferation can be checked.

Since the introduction of this Bill, I have received a number of representations from finance companies and these are being studied. Every consideration will be given to the representations and, if necessary, this legislation can be amended in an amending Bill. I must say, however, that I am not in sympathy with all the representations that I have received. We cannot have finance com panies encroaching into territory which properly belongs to banks. It is not an accident that the growth of finance companies took place at a time when control and supervision of banks were tightened.

Having said this, I acknowledge that different kinds of finance institutions are needed to mobilise our capital resources and that a proper role must be defined for finance companies. This Bill is the first attempt at the definition of such a role. Some companies have expressed alarm that `they would have to liquidate some of their liabilities within six months. I give them an assurance that an extension of this period will be granted to' finance companies which have genuinely been attempting to liquidate these liabilities within the six-month period of grace.

Sir, I beg to move.

Question proposed.

3.54 p.m.

Mr Ang Nam Piau (Thomson): Mr Speaker, Sir, the establishment of finance companies in Singapore has recently been increasing at a very speedy pace. They might not be as prolific as the mushroom, but they certainly have become, in total, a very significant and influential financial institution in our economy. Their influence and dynamism in our economy have caused us no comfort. As representatives of the electorate, we cannot sit back with little care or total indifference. As influential financial institutions, the finance companies operating i11 Singapore may be able to contribute significantly to the economic well-being of our society if they are brought under proper control. On the other hand, they may render inflation-investment, disequilibrium and even economic chaos should we indifferently allow them to run wild. I positively support and congratulate our Minister for Finance on tabling this timely Finance Companies Bill to regulate the operation of finance companies in Singapore.

Taking a sweeping survey of the island, we discover the following types of business organisations operating as finance companies. First of all, there are the so-called hire purchase companies which deal with sales of motor vehicles, sewing machines, television and radio sets and other durable goods in instalments. They call themselves hire purchase companies when, in fact, they are conducting sales of goods in instalments. The distinction between hire purchase and sales in instalments is this. On hire purchase terms, the goods are delivered to the buyer after he has made a down payment, but the ownership of the goods remains with the seller, while the buyer enjoys the use of the goods as well as the option to buy while making the monthly instalments. On sales in instalments, the goods are delivered to the buyer who is supposed to buy the goods without an option; thus the ownership of the goods goes to the buyer immediately. Against this legal conception of hire purchase and sales in instalments, we understand that hire purchase companies finance the sales in instalments on hire-purchase agreement, giving the buyer no option to buy, but the ownership of the goods remains with the finance companies unless and until the final payment is made. In other words, the buyer has to forego the option to buy and yet he holds no title to the goods.

Many hire-purchase companies of this kind are being set up with very little paid-up capital. They normally act as agents for big finance houses to conduct hire-purchase transactions. Though they deal in the borrowing and lending of money, they operate under the Hire Purchase Ordinance and are not in any way regulated or restricted by the Moneylenders Ordinance.

Secondly, we have pawnshops all over the island borrowing and lending money. The bulk of their business is to lend money on acceptance of durable articles, though title deeds are also acceptable. The sources of funds for their operations are their own paid-up capital, operating profits, deposits from the public, and money received for custody. Many cases of deposits of money received for custody are accepted on a gentlemen's agreement and business trust, with or without documentary evidence acknowledging their receipt; and there are not a few cases where the so-called gentlemen's agreement and business trust are rendered valueless as they are not enforceable in a court of law or even in equity. As we have as yet no legislation or a statutory prescribed rate of interest payable by pawnshops to the depositors of money, the consideration allowed for the deposit of monies with the pawn shops remains a subject for bargaining. Mr Speaker, Sir, we require very little imagination to visualise a simpleminded member of the public, with a sum of money and without any investment opportunities, going to a pawnshop and bargaining with a highly business-minded pawnshop proprietor.

Then we have the business-front organisation of the banks, i.e., the finance companies wholly owned by the banks. Openly these finance houses are set up to conduct business transactions which the banks are prohibited from doing. For instance, the Banking Ordinance controls the payment of rates of interest by banks to depositors for fixed-term savings, but the finance houses are at liberty in this respect.

Of course, we cannot afford to deny the importance of moneylenders licensed or unlicensed, in the money market. Licensed moneylenders, on obtaining a licence, automatically come under the restrictions and regulations laid down in the Moneylenders Ordinance. Unlicensed moneylenders, though not legally recognised, or to be more correct, they are operating illegally, certainly have some business influence in business circles.

Last but not the least are the finance companies incorporated under the Companies Ordinance. They form the major arm in financing business. They deal in heavy borrowing and lending, yet they may or may not come under the restrictions laid down in the Moneylenders Ordinance, depending on exemption provided in the Ordinance being granted. On exemption being granted, these finance companies have a free hand in financing activities. They are apt to charge the borrowers exorbitant interest rates.

Mr Speaker, Sir, having described the aforesaid categories of financial institutions, my uncertainty, which I hope can be clarified, is this. Is the Finance Companies Act, 1967, as introduced by the Hon, the Minister for Finance, to be adopted for regulating and controlling all categories of finance organisations, firms, houses and companies? Sub-clause (1) of clause 3 provides that no financing business shall be transacted in Singapore except by a company that is in possession of a valid licence granted by the Commissioner for Finance Companies, and "financing business" as interpreted in clause 2 means the business of borrowing money and lending money. Am I to understand that a licence is essential for all types of financing business organisations irrespective of whether they are under the regulations and restrictions of other Ordinances?

Mr Speaker, in our society where public economic planning and private enterprises are operating hand in hand, certain projects are operating under statutory bodies as monopoly under takings and as an encouragement to commercial and industrial activities. In the absence of national finance organisations, financial institutions operated by private entrepreneurs become the baby to be taken care of by legislation. From the economic point of view, the financial institutions in Singapore are playing a supplementary as well as a complementary role to the banks as evidenced by the fact that most banks establish finance houses of their own. A banking corporation in any country, even in totalitarian States, is a vital financial institution. The banking corporations in Singapore, as elsewhere, owing to certain limitations, statutory, economic or otherwise, have not been able to serve the economy to the best of their ability and because of this, finance companies have come into the picture. One of the financial activities which the finance companies undertake to supplement those of the banks is the tapping of the financial resources at large and collectively channel them into fruitful investment and development projects. Another financial activity undertaken by finance companies to supplement those of the banks is to providc loan facilities, it is very well known that practically all banks in Singapore are reluctant to provide long-term loans and even their short-term credit facilities are available only to selected clients and with the provision of security. In the light of these wants and demands, finance companies come in to make available hire-purchase financing, house and property mortgage loans to individuals, machinery and equipment loans to industries, and general unsecured loan facilities. In summary, finance companies provide services and conduct financing activities which are not available from banks and these supplementary activities help in accelerating the economic growth of the State.

Mr Speaker, Sir, knowing the significant role the finance companies are playing in the economy, we recognise without any reservation the urgency of a Bill to regulate and control the operations of finance companies as financial institutions, lest they run wild and give rise to inflation, business disorder and economic destruction. In addition to recognising the need of a Finance Com panies Bill, I wish to reiterate my appreciation of our Minister for Finance in introducing the Finance Companies Bill. But while we recognise the need for such a Bill to be introduced to protect the interests of depositors and the general public against unscrupulous finance institutions, there is also the need to review some of the clauses and certain provisions included in the Bill for the implementation and administration of the Bill. I know that the object of the Finance Companies Bill is to safeguard the depositors and the general public against any malpractices by some of the unscrupulous finance houses. I also know that impractical restrictive control will curtail business activities or even make the finance institutions extinct. The possible adverse effects will no doubt bring home serious negative consequences to the State. While supporting the Finance Companies Bill in imposing control on the operations of finance companies and welcoming the introduction of the Bill, I wish, Mr Speaker, Sir, at this juncture to make some constructive criticisms of some of the provisions of the Bill. Firstly, clause 20 limits the investment of finance companies to the extent of 25 per cent of the paid-up capital. The purpose of including this restrictive clause in the Bill is presumably to prevent finance companies from engaging in risky investment and investing in unsound propositions. It may be necessary to ensure the sound investment policy of each finance company, but a flat percentage may not be a good yardstick in ensuring a sound investment programme.

Secondly, there is the provision prohibiting finance companies from granting loan facilities of an unsecured nature of more than $1,000. Without the support of any statistical information, I can safely maintain that $1,000 is too insignificant, and to take that amount as the ceiling is very inadequate. Bearing in mind the business volume and the turnover of the unsecured loan facilities granted and executed by finance companies, I have no doubt that the ceiling of $1,000 warrants reconsideration. As far as I know, Sir, there are finance companies who grant unsecured loan facilities to borrowers to as much as $10,000 to $20,000. The turnover of unsecured loan facilities to within $1,000 does not constitute much of a total. I will pause just a while to ascertain the implications of unsecured loans. Do we, Mr Speaker, Sir, consider a loan granted to a borrower who has a guarantor willing to undertake to indemnify the repayment as an unsecured loan? If the Bill considers loan facilities granted with some personal guarantee are unsecured loans, then I maintain that the $1,000 ceiling warrants recon sideration. If the Bill considers that as a secured loan, I shall withdraw my observation in respect of this restrictive clause.

Mr Speaker, Sir, I should be very grateful if the Hon, the Minister for Finance would kindly assist in clearing up my uncertainties.

In conclusion, Sir, I wish to give my full support to the Finance Companies Bill as introduced by the Hon. Minister for Finance.

4.11 p.m.

Mr Chow Chiok Hock (Ulu Pandan): (In Mandarin): Mr Speaker, Sir, I have something to say on this amendment Bill. Certain points therein should be brought up for discussion. This Bill will not actually promote economic activity and increase the liquidity of finances in the country to the fullest extent. We know that the capital of these finance companies is obtained by way of deposits from the general public. These finance companies are quite different from ordinary banks. Since our own people invest in finance companies, the Government should look after them. The depositors are mainly middlemen and other small traders. Finance companies are not like banks which are controlled by big capitalists. Finance companies carry on operations which banks do not like to undertake. For instance, they provide loans to the ordinary people to buy cars or houses, or to set up small family or cottage industries. The ordinary people can get such loans from these finance companies which they cannot get from the banks. I feel that finance companies have a great role to play in the accumulation of capital and a very important place in our economy. This Bill touches upon something that is of great importance to the general public as well as to the finance companies. I do not oppose its introduction. This Bill regulates financing in our economy and protects the depositors. The Government will have to exercise some measure of control over these finance companies. But because of their close relationship with the population, especially our small merchants, I feel that if we control these finance companies too much or too strictly, then it may cause some undesirable consequences. These finance companies have a very close relationship with our small merchants, industrialists and ordinary people. The Government should not discriminate against them or single them out for special treatment because they have some contribution to make to our economy. Yet there is a provision in the Bill that a finance company should have $500,000 paid-up capital and also a certain percentage of liquid assets. In fact, the capital invested in some of these finance companies exceeds the minimum amount imposed on the banks.

Recently there was a regulation that if a foreigner invests $350,000 in local industries, then he can bring his family to Singapore and they can even become citizens of Singapore.

[Mr Lim Cheng Lock in the Chair]

4.16 p.m.

Mr Chow Chiok Hock (Ulu Pandan): This may appear to some people as some sort of favouritism and therefore we have to look into this.

There is provision for the post of Commissioner for Finance Companies to look after the operations and accounts of finance companies. Will this enhance the confidence of our people in finance companies? This legislation is aimed at safeguarding the interest of the depositors. We should look after the interest of all the people. We should base our viewpoint on the benefit which these finance companies can bring to our economy. We should bear this in mind.

The Minister has said that the Bill is for the protection or the security of depositors, but he has not looked into the consequences. I am worried about the consequences that may befall finance companies as a result of the passage of this Bill. I am also rather worried about the consequences it will have on our economy, a great part of which is motivated and stimulated by finance companies through deposits by the public.

The Bill also provides that finance companies should not undertake certain transactions, and unsecured loans should not be more than $1,000. Certain transactions which are not allowed under clauses 19, 20 and 21 and so on, will have to be liquidated within six months. If finance companies had entered into such transactions and if they have to liquidate them within six months, then they will have to auction their assets and business. They have to close shop as a result of this. And what benefit will it give to the depositors if such consequences take place? Also the staff of these finance companies will be joining the camp of the unemployed. In fact, people find it more profitable to have immovable property in their pos session. For instance, a finance company can buy over a whole building for its operations and for letting Out to other businesses. Money accruing from rents would be sufficient to meet expenditure on running costs, etc., besides leaving a profit. The finance companies can pay the 36 per cent property tax and 40 per cent income tax. In addition to paying these taxes, they can also make a profit. So there will be no loss to anybody. Without the profit finance companies can secure from this sort of operation, how can they pay interest to the depositors? If they are required to auction all their immovable property, then this may shake our economy. As a result, some family and cottage industries may suffer, because they cannot get loans easily from big banks. So they have to look to finance companies for unsecured loans. The finance companies are the only providers of loans to them. According to the provisions of the Bill, finance companies are prohibited from providing unsecured loans of more than $1,000. This being the case, the small industries will suffer. And if finance companies comply with these provisions, there will be liquidation within a certain period and the small industries will again suffer.

I will now touch on the provision of unsecured loans which should not exceed $1,000. If this provision is to be complied with and other than the liquid assets the finance companies have, I feel there is no security for the depositors because the finance companies can also give large amounts of loans on other things. There is also a provision stipul ating that the loans given out should not be more than a certahi percentage of its paid-up capital. I should say some finance companies may find it difficult to carry on with their business because of this restriction. Small industries will also suffer. If the Government's intention is to look after the interest of the depositors, then I would suggest amending clause 16 of the Bill which provides that:

`Where a finance company has accepted money from any person as a deposit the company shall within two months after the acceptance of the money issue to that person a document which acknowledges or evidences or constitutes an acknowledgment of the indebtedness of the company in respect of that deposit.'

Now if the finance company does not issue a receipt on the spot on receipt of the sum of money, it can put the money away without issuing a receipt or any document to show that it has already received that sum of money deposited. Then where is the security that is talked of which the depositor can have? If the finance company has a latitude of two months, then it may, perhaps on the last day of the second month, issue a receipt of acknowledgment and the depositor will lose two months' interest on the amount of money deposited. If such a thing happens, it will be a loss to the depositor because he has lost two months' interest on that amount of money.

I think there are other Members who want to speak on this Bill. So I would not like to say too much. I feel generally that the Minister should not be too insistent. He should be more flexible. He should send the Bill to a Select Committee and hear representations from the people concerned and amend the Bill if necessary so as to make it perfect.

4.28 p.m.

Dr Chew Chin Han (Tampines): Sir, the expressed purpose of this Bill is to safeguard the interest of members of the public who deposit funds with finance companies. In moving the Second Reading of the Bill, the Minister for Finance tried to make out a case for his new law. As in any trade or business, there are good companies and bad ones, good traders and bad ones, There may be a finance company formed by persons who require money for their own business. They are unable to obtain finance from banks or other sources of loans and so they form a finance company to raise capi.tal for their own business. There may be others where the intention of the directors is to collect as much money as possible from the public on the promise of very high interest, and then do a bunk. Finance companies which are formed on this basis or which are run on these lines are a menace and the public must be protected from them. But the question I ask is, are these .the only types of finance companies? The answer must be "No". We have not heard of any finance company in Singapore failing. There are many finance companies operating in Singapore. Most are honest and provide a very useful service to the investing public who do not have enough money to buy property. Also to those who do not understand shares, they give a slightly higher rate of interest than the bank gives. There are many borrowers who cannot obtain loans from banks. They say that banks only lend money to people who have a lot of money and want to double what they have. It is impossible for the small trader or the young professional man who is just starting out in his career to obtain any starting capital from banks. In other countries, banks are not so old-fashioned as Singapore banks. The small trader and the young professional man in Singapore must turn to finance companies. The explanatory statemen.t of the Bill says that it is proper that finance companies should wherever possible be assimilated with banks.

[Mr Speaker in the Chair]

4.30 p.m.

Dr Chew Chin Han (Tampines): Why must this be done? Finance companies are very different from banks. If we pass this new law, we may have no finance companies but numerous banks in a few years' time. Where then is the small trader or young professional man to go if he cannot give security to obtain a loan of more than $1,000? If the main reason for introducing this law is to control the bad finance company, is there no risk that we will kill the good finance company as well? There is a serious danger that this will be the result because there is little that is certain in a section of this Bill. A lot of discretion is given. I am not a lawyer. From my little understanding of this Bill, the Commissioner for Ftnance Companies is going to be made a very powerful man. He may even have more powers than other civil servants except the Banking Commissioner. Everything is left to his discretion. Under clause 5, he can grant a licence with or without conditions. He may refuse a licence. No rules are laid down, though he must act with the approval of the Minister. He need not give reasons. There is no appeal from him. Having given the licence, he may at any time vary or revoke the conditions or impose additional conditions. This is in clause 5 (4). Sub-clause (4) says nothing about the Minister's approval. Again, no rules are laid down to say when the Com missioner can vary or revoke conditions. All that the sub-clause says is that he can do so at any time. Furthermore, there is no appeal; no notice is required. A provision like this makes the Com missioner a very powerful man indeed! Clause 7 also gives him such powers. So does clause 8, but here in sub-clause (4) there is a right of appeal to the Minister. But under clause 28 (3) , the Com missioner must act in accordance with the Minister's directions. I am not worried about the present Minister, but who knows what kind of a man our future Minister may be? There is no appeal under clause 9. Clause 10 gives a finance company a chance to present a case to the Commissioner before its licence is revoked. Why cannot this also be done in clauses 7, 8 and 9? So far I have referred to the Commissioner's wide powers over the issue and cancellation of licences and conditions. He has similar wide powers over the regulation of business. By clause 15, he can ask for all information and data as he reasonably requires. There is no limit - only the Commissioner's ideas of what is reasonable! He is given power to determine the minimum amount of liquid assets. This is in clause 24. By clause 26, he can order corrective action. What does "corrective action" mean? He can tell the finance companies to stop business. He can also tell them how to run their business, and if they suffer a loss, clause 30 frees him and the Government from responsibility unless he is guilty of fraud. He is given wide powers but no financial responsibility. This is very dangerous. Is there a financial wizard in the civil service who can tell competing finance companies how to run their business properly? If a company fails, the directors will naturally tell the public, "The company has failed because the Commissioner gave wrong directions." They may be wrong, but the public may blame the Government. Does the Government want the blame? My fear is about the Commissioner's powers. If such powers are given to one civil servant, other civil servants may want similar powers, because their work will be made easier. The Director of Public Works will be `tempted to ask for such powers over the contractors and engineers; the Chief Architect will want powers over the architects; the Attorney-General will want powers over the lawyers; and the Director of Medical Services will want powers over the doctors. If all these civil servants can work well without similar powers, why should we give them to the Commissioner? I hope the Minister will explain the necessity for this unrestricted wide power. I also hope he will tell us whether any other country has a law like this and whether officers in charge of finance companies in other countries have similar power.

I support the general intention behind the Bill. I would like the Minister to give clarification on the matters I have raised and to inform the House why the intention cannot be carried out without giving such wide powers to the Commissioner for Finance Companies. Furthermore, would it not be better if the Bill were sent to Select Committee because it is quite complicated? I do not believe there is an urgency to push it through for Third Reading today. I am sure that if it is referred to Select Committee, we can have not only the views of finance companies but also the views of banks, depositors and borrowers. There might be a proliferation in the establishment of new finance companies, but if we pass the Bill quickly without careful examination, it will carry a lot of dangerous provisions.

Mr Speaker: I propose to take the suspension now and will take the Chair again at 5.10 pm.

Sitting accordingly suspended at 4.39 p.m. until 5.10 p.m. Sitting resumed at 5.10 p.m.

[Mr Speaker in the Chair]

Debate resumed.

Mr S. Rajoo (Farrer Park): Mr Speaker, Sir, it is satisfying to note that the Government has realised the need to control finance companies in the interest of members of the public. We have seen many finance companies and institutions advertise attractive terms and conditions which they claim to be in the best interest of the general public, but can they deny the fact that ultimately it is they themselves which stand to gain more than the general public? Nevertheless, taking into consideration the fact that the finance companies do have a genuine interest in enhancing the financial and economic interest of the public in particular and the State in general, it is the duty of the Government to protect the public from any swindl ing by some finance companies. For instance, before getting a loan on the pledge of a motor-car or an article, some companies do charge "football money" which i's illegal and which will never come out in the accounts. I am not saying that all finance companies charge "football money", but some companies do charge it. By not showing this income in their accounts, they do not pay income tax. The borrowers, in addition to paying the illegal interest, have also to pay more than what the law allows. Will the Government do something to stop this illegal practice?

The next point I want to bring up is that finance companies charge 10 or 12 per cent interest on secured loans on hire purchase. This interest is calculated on the original sum lent and is not calculated on the amounts due after payment of instalments. So this so-called ten per cent interest actually works out to more than 18 or 19 per cent. We have laws to see that mortgagors do not charge more than 12 per cent on secured loans, but in the case of finance companies, the interest charged is actually more than the interest legally allowed. I hope the Ministry of Finance will look into this problem and standardise the interest charged.

The last point I want to raise is with regard to "chit fund" which is publicly known as "tontine". There are a dozen chit fund companies in Singapore which run chit funds and they deal in hundreds of thousands of dollars. They are not doing business on the accumulated capital hoarded by them but on funds collected from the public. 1 do not know whether, under the present Bill before this House, these chit funds can be controlled by the Government. Recently, I heard that some of these companies are unable to repay to the depositors the amounts deposited by them after an agreed maturity period. People who have been convicted of criminal breach of trust and people of not a reputable character are known to be managing such business. I appeal to the Government to bring these chit fund operators under some form of Government control by way of legislation so that the public can be protected.

5.15 p.m.

Mr Teo Hup Teck (Jalan Kayu): (In Mandarin): Mr Speaker, Sir, the introduction of this Bill aims at strict control of finance companies and the operation thereof. It also aims at the protection of depositors who invest money in them. Therefore, the intention is good in principle, and I believe it is the aim of the Bill to get rid of those finance companies which are not properly run or not bona fide. But the operation of this Bill may also affect those companies which are bona fide. So, Mr Speaker, we must accept the fact that a well-organised and properly operated finance company is of benefit to small traders and wage earners in Singapore. In short, to the small man, finance companies which are bona fide are good because they provide easy and convenient financial aid. But we agree that those which are not so good, of course, should be dealt with. So before this Bill is passed in this House or implemented in future, we should go a step further and study this Bill more carefully to see whether certain clauses in it are over-restrictive, thereby stifling the proper operation of bona fide finance companies. We must see that such bona fide companies are not adversely affected by the operation of the law. On the contrary, if operation of finance companies in Singapore contributes to the prosperity of our country, then they should be encouraged and not restricted adversely.

Mr Speaker, if this Bill is passed hurriedly without any overall careful consideration of the various repercussions and consequences, then it will cause some confusion in our society, parti cularly to those who are now depositors. Ef such depositors lose their confidence in the finance companies, then some sensitivity will be caused and a lot of depositors will queue up outside the finance companies to withdraw the `money they have deposited. This will give rise to very serious repercussions and dangerous consequences.

Mr Speaker, I fully endorse the views expressed by the Member for Ulu Pandan when he suggested that this Bill should be referred to a Select Committee for further careful consideration. In this way, representatives of finance companies and members of the Singapore Chinese Chamber of Commerce and other interested parties, including members of the public, will be given a chance to express their views on this Bill. At the same time, we can avoid the misunderstanding on the part of finance companies in Singapore who may allege that this Bill is introduced in order to assist foreign capital at the expense of local capital.

Mr Speaker, generally speaking, we all know that the role played by finance companies is similar to that played by banks in Singapore. Mainly their business is to collect deposits from the people and give out loans at some interest. So in this way they are the same as banks. And their existence need not necessarily pose a threat to or compete with the banks in Singapore.

Mr Speaker, I wish to quote the editorial of the Sin Chew Jit Poh of the 19th of December. This editorial made certain suggestions in regard to the present Bill. It says that banks play a very important role in the accumulation of capital, but the role that they play has not reached the ideal stage. The standard of living in Hong Kong may not be as high as Singapore, but, on the average, the population in Hong Kong have about $2,100 deposited per capita in the banks. This is higher than the average deposit in Singapore per capita, which is only $650. So the average deposit per capita in Hong Kong is about three times that of Singapore.

In this respect, if finance companies can assist in looking for liquid assets or idle capital, then the accumulation of capital brought about by the finance companies will be of great benefit to the industrial development of Singapore, particularly in the field of investment. So it is clear that there is scope for expansion of the business of finance companies.

The editorial also dealt with three points. The first point is that this Bill is actually a duplication of the Banking Ordinance, but it is more restrictive than the Banking Ordinance. So because of this Bill, the position of finance companies in future will not be as good as that of the banks, and difficulties will arise which may stifle the flourishing business of finance companies in Singapore. This may give rise to very serious consequences.

The second point brought up in this editorial is that the future activities and businesses of finance companies under strict control will not function so well, and this is the negative aspect of this Bill. As a matter of fact, it may be good to protect the interests of the whole of society, but in protecting the interests of the society, particularly the depositors, we should also see that the restrictive law does not interfere with the role played by the finance companies in national development. And so they should be given the same protection as insurance companies are given in Singapore.

The third point brought up in the editorial is that the regulation of the operations of finance companies in loans and mortgages and other aspects is too restrictive. It suggests that if banks are allowed to give loans on hire purchases and mortgages, why cannot finance companies be given the same facilities? If insurance companies are treated as banks, why cannot finance companies be similarly treated?

Mr Speaker, the existence of finance companies is more or less complementary to the operation of banks in Singapore. I would like to show in what way this is true. Many small traders, industrialists, or small manufacturers are unable to get financial assistance from banks, but they can get it from finance companies. This is one instance of industrial or commercial activities by finance companies, and in this way they make a great contribution to our economy.

Clause 6 of the Bill provides that the paid-up capital of a finance company shall not be less than $500,000. But clause 17 (1) (c) provides that any unsecured loans should not exceed $1,000. So if a company has a capital of $500,000, its unsecured loan is to be limited by this clause to $1,000 or less. This is inconvenient to the operations of the finance company, and I feel that this clause should be reconsidered. We must see whether the financial position of the individual finance company warrants such a blanket restriction. In other words, we must have some discretion in respect of restriction of loans according to the paid-up capital and the position of the individual finance company.

Mr Speaker, if a finance company is big, bigger than the others, then I think it can increase the loan granted. In order to meet the very high overhead expenses, some finance companies may raise "football money" or the rate of interest in respect of loans given out, and because their scope of activities is narrowed down, their turnover becomes smaller. So their profits may not be able to meet the overhead expenses. Because of this, some of the finance companies may have to retrench their' staff and some may have to close down, thereby giving rise to more unemployment and aggravating our present unemployment situation.

Mr Speaker, clause 21 of the Bill' says that no finance companies shall purchase or acquire any immovable property. We must understand that when finance companies receive deposits, from the public, they pay interest. Therefore they must do some business by way of loans given out at higher interest rates. If there is a provision that no finance company shall purchase or acquire immovable property, then how do we expect them to continue with their operations? Generally speak ing, banks can make use of money in current accounts without interest. This position which is enjoyed by the banks is not enjoyed by the finance companies. In fact, banks also levy service charges to meet their overheads, even in respect of current accounts. On the other hand, finance companies do not enjoy such facilities. So if they are to be more restrictively controlled than banks, then in order to meet their overhead expenses and to maintain their level of profit, they will meet with great difficulties. In fact, they may not even make a profit at all under these stringent restrictions. The idea of this Bill, of course, is to protect the interest of the public, and the strict control of finance companies is good only to this extent. Mr Speaker, before this Bill is read a Third time, it is my humble view, a view shared by the Member for Tampines and the Member for Ulu Pandan, that it should be referred to a Select Committee for reconsideration.

5.32 p.m.

Mr Ho See Beng: Mr Speaker, Sir, I rise in support of the Finance Companies Bill whose object is to license and control finance companies and to govern matters connected therewith. Since the purpose of this Bill has been made very clear and specific, therefore, bona fide finance company houses should have no cause for any undue apprehension.

Although clause 22 of the Bill provides that within six months of the date of its coming into operation finance companies are required to liquidate all transactions prohibited by the provisions of the Bill, nevertheless, Mr Speaker, Sir, earlier on the Finance Minister has already stated that consequent on the passage of this Bill, if and when genuine grievances arise, he is prepared to consider sympathetically their respective difficulties.

An important feature of the Bill is the restriction placed on the powers of the directors and other officers of a finance company to deal with the money deposited with the finance company. This is very important, Mr Speaker, Sir, because many members of the public are induced to place their savings in a finance company by the attractive interest rates offered by the company on such deposits. Up to now, there is no specific Ordinance to ensure that a finance company takes as good care of such deposits as any honest businessman will take care of his property. In that sense, the Government should be congratulated on initiating such a Bill. Mr Speaker, Sir, my concern is this. As a socialist by conviction, I feel that the the larger interests of the community in stead of a microscopic few should be given first regard. Sir, another concern is this. As a trade unionist, I feel that if the Minister for Finance can give his sympathetic consideration to genuine grievances, there is no fear at all for bona fide finance company houses having to resort to retrench employees as a result of the passage of this Bill. And if this end can be achieved, I will propose to the Minister for Finance that the day of the coming into operation of this proposed Act is not made retrospective but is to take effect in the near future. Hence there is no need to refer this Bill to a Select Committee.

5.37 p.m.

Mr Lim Soo Peng (Havelock): Mr Speaker, Sir, the touchstone test of this Bill is not so much whether it can control finance companies, but whether it can control them without killing them. With the present-day economic arrangements of our society and of any advanced society, there is no dispute that finance companies do play an important part in our economic life. Gone are the days when a person wants something, he saves for it. Today he pays a small down-payment. Sometimes he does not even have to do that, and he enjoys the use of the article he wants and pays for it in instalments. Consumer credit is now the rule rather than the exception. Under such circumstances, finance companies are something we cannot do without. And yet for a long time many people have felt that they should be abolished. Sir, this is because finance companies readily lend themselves to abuse by unscrupulous people. One of the causes of apprehension over the profusion of finance companies over the past few years is that by their very profusion they are forced by competition to pay such high interest rates that they can only hope to pay them by resorting to speculative ventures. A large number of finance companies are known to be speculating, and at times even wildly, in properties and in the stock market. If a person speculates with his own money, that is his own funeral if he fails. But when a finance company plays around with depositors' money, then clearly it is the duty of the State to ensure that such things cease. The present Bill before the House does provide the means to restrict the number of finance companies.

Clauses 5 and 6 provide the Commissioner not only with the powers to shape the structure of finance companies, but also to limit them. I personally would have preferred to see the figure of $500,000 in clause 6 doubled. But I do not wish to press this point as I am confident that the Government will not hesitate to raise it should it become necessary to do so.

Another cause of apprehension over finance companies is that few of them provide adequately for bad and doubtful debts. This is so because operators of finance companies prefer to lose other people's money rather than their own. And so they distribute as much of their profits as possible and allow their depositors to carry the risk of bad and doubtful debts. Clause 12 will, I feel, go a long way to safeguarding the depositors and, in addition, to providing a built-in growth factor for the finance companies to grow to a reasonable size. Of course, this clause will have the disadvantage of inducing minimum initial capitalisation even when funds are available. It is conceivable that funds which otherwise would be capitalised would be rearranged as loans. However, as such an arrangement will be countered by the liquidity ratio required by the Commissioner, I feel that a correct balance has been struck.

Clause 14 requires that every finance company shall exhibit its balance-sheet and the list of its directors at its principal and branch offices, if any. The company is also required to publish its balance-sheet in at least each of the four local daily newspapers in the four official languages. There is no requirement to publish the list of directors. A better requirement, I feel, is to have the publication in the leading instead of any daily newspaper in the four language streams. I further suggest that the list o directors should also be published. My suggestion to have publication in leading newspapers is to ensure that some finance companies do not select little-read newspapers for publication of their balance-sheet and widely-read newspapers for advertisements calling for deposits.

Clause 20, as it stands, can, I feel, be by-passed quite easily. The clause only requires that a finance company shall not hold share capital or have a direct interest in any financial, com mercial, agricultural, industrial or other undertaking, exceeding a quarter of its paid-up capital and published reserves. This clause does not, in my view, prevent a finance company indirectly committing funds exceeding a quarter of its capital and reserves. I should like to see the clause rewritten to include a restriction on direct and indirect participation exceeding a quarter of the capital and reserves. The proviso that excess share holdings acquired in the course of debt-realising should not be allowed, appears not to be necessary. Indeed, the very existence of this proviso indicates the weakness of the clause itself.

Clauses 25 and 26 put teeth into the provision for supervision. As such, the penalty provided under sub-clause (4) of clause 25 of $250 is rather low. Normally one would expect that no finance company would refuse to show its books and data to an officer appointed by the Commissioner. The occasion when it will do so will be rare but very important from the point of security of the depositors. I would suggest a heavier penalty be provided. Mr Speaker, Sir, with these comments, I support the Bill.

5.45 p.m.

Mr Lee Teck Him (Tiong Bahru): (In Mandarin): Sir, I support the Finance Companies Bill. Why I support it is that in the past the law has loopholes. For example, not long ago there was an assurance company owned by a foreign investor. He earned a lot of money. Perhaps the people thought that he was from a financially strong country. Therefore, many people bought policies from him and he earned a lot of money. He requested the Government to allow him to remit his money back to his country. After investigations, the Government found that he had no capital invested. Why is it easy to do business without capital? It is because we have loopholes in our law. Therefore, we must revise and amend our law in order to deal with speculators.

We know there are many finance companies in Singapore. There are as many finance companies as there are coffee-shops. Therefore, we should con trol them. We must take care and look into the matter. We know that the capital of finance companies varies. Some have large capital and others have less. But the business done exceeds the capital. Where is the security granted to the depositors? One day if the money is swallowed up by the company, who is to repay the depositors? Is it the Government? Therefore, I fully support the Bill introduced by the Finance Minister. However, we should refer it to a Select Committee in order to study it in greater detail.

5.49 p.m.

Mr Ng Yeow Chong (Mountbatten): Sir, I do not in any way oppose the introduction of the Finance Companies Bill which is now tabled in this House for Second Reading. However, I wish to offer my brief observations. First, I do agree that there is a need for the passing of laws to control finance companies in the best interest of the public at large. The main purpose of this Bill is to safeguard the interest of would-be depositors who are mostly the working-class in our Republic. This is a correct move and in line with the policy of our Government.

Secondly, the provisions in this Bill are far too rigid. They are designed not only to control and restrict the establishment of finance companies, but also to regulate the scope of their business.

Thirdly, I would like to offer some suggestions. The control must be gradual and not too rigid. Sir, the provisions contained in clauses 17 to 22 are far too stiff and restrictive. The result will be that the small trading houses will have to close down and the interest of the public may be jeopardised and unemployment will also result. The control and licensing of finance companies would create an impression that finance companies in general have been fiddling with public money. I agree that there may be a few dishonest and unscrupulous ones, and so there goes the saying - a rotten egg in a basket of good eggs has made the entire basketful rotten.

According to this Bill, the Commissioner seems to have wide powers. The prescribing of the maximum rates of interest - and they are going to be ceiling rates - should be treated as a guide rather than an order, as some companies may not be able to pay such rates. As a matter of fact, it is purely in the public interest to have an equitable distribution of profits. Unlike service, the payment of interest varies according to the sums deposited. For example, if $10 million has been utilised and if it has resulted in profits of, say, $1 million, then the management of the finance company will be able to pass on part of the profits to the depositors according to the amounts they have deposited. Surely any finance company which can afford to pay such bonuses should deserve the support of the public.

Fourthly, the finance companies in our Republic do play an important role in our economy. This being the case, the Government should encourage the existence of such companies rather than push them over the cliff, so to say, because of the extremely restrictive measures in this Bill. To me, some of the measures are even stricter than those in the Banking Ordinance.

My fifth point is that at the present moment the finance companies are carrying on a very wide range of business ii our trading society. If too many restrictions are to be imposed, the end result will be that a few finance companies will exist and this will, in turn, contradict the policy of our Government to encourage industrial growth, as a lot of small traders and small factories are depending on loans from finance companies to carry out their expansion programmes.

Sir, I now come to my sixth point. As the present position stands, finance companies have actually participated in the development carried out by the private sector, i.e., housing development for the higher income group, for which there is at the moment no government participation. In this particular field, a lot of private funds are involved and the depositors will then in turn enjoy the benefit.

Lastly, I wish to urge the Minister for Finance to refer this Bill to a Select Committee for views from all sections of the public. I see no urgent need to rush through this Bill today.

5.55 p.m.

Mr Govindaswamy: (In Tamil): Sir, this Finance Companies Bill has my full support. It is to control the activities of finance companies and to safeguard the interest of the public. The proposal that this Bill should be sent to a Select Committee is a means of delaying its passage. My view is that it should be taken through all stages and passed into law.

5.56 p.m.

Mr Sim Boon Woo (Changi): Mr Speaker, Sir, the advent of finance companies seems to be quite a recent one. They have sprung up like mushrooms. At a glance, they may be classified into three categories :-

1. Finance companies which are subsidiaries of banks;

2. Small-time finance companies which lend money in respect of sales or hire purchase of cars, taxis and even to kelong owners, fishermen and farmers;

3. Large finance companies which operate independently in the field of investment.

Sir, the fact that banks operate their Own finance companies appears to stress the need for such institutions. It also to a certain extent reflects the inadequacy of the services provided by the banks themselves. On the whole, finance companies do serve the needs of certain sections of our population. One may place them somewhere between banks and the chettiars or moneylenders. For those who have access to banking facilities and who are reluctant to use the facilities provided by the chettiars or moneylenders, finance companies will be in a position to offer the necessary assistance in their financial problems. The increasing number of finance companies operating in the Republic does point to the necessity of legislating certain controls over them.

About the Bill itself, my colleagues and I are concerned about the ceiling of $1,000 for loans of an unsecured nature. This will definitely affect the small traders, farmers and kelong owners I hope the Minister will reconsider relaxing a little on these $1,000 unsecured loans.

Sir, if finance companies are to be allowed to continue their operations in the Republic, they should be placed under some control in order to safeguard the interest of small depositors, but they should be allowed reasonable scope for conducting their business to ensure that there is enough profit for discharging their obligations. I am sure that the Bill, in spite of its restrictions, gives genuine finance companies, not the mushroom type, enough scope to do business and make some profit.

Sir, originally I thought that after the Second Reading of this Bill, it would be referred to a Select Committee to enable the affected parties to have an opportunity to voice their opinion.; or make their recommendations. Sir, I would further add that it would appear, at first sight, unfair on the part of the Government to pass a Bill of such a nature without listening to the views of the public. I could not understand the urgency for this Bill going through its Third Reading today, but having heard the explanation of the Minister for Finance, I am satisfied and convinced that the earlier the Bill becomes law, the better it will be for the have-nots.

Sir, I doubt whether other countries have similar legislation, but unique circumstances must be met with legislation. After all, the P.A.P, is the People's Action Party, not just in name only. If we are to protect the small traders, fishermen and farmers from being swindled by unscrupulous operators of finance companies, the protection given by this Bill is very necessary.

Sir, I support this Bill without reservation.

Mr Tang See Chim (Choa Chu Kang): Mr Speaker, Sir, the Government's intention of bringing in legislation to regulate finance companies was first announced in last year's Budget debate. It has taken a full year for the Bill to come before Parliament. It is, of course, better late than never. It is very necessary that legislation be introduced to control what my colleague calls the mushrooming of finance companies.

The object of this Bill is to protect small investors. That is what a socialist government like the P.A.P, should and must do. It is ironical, therefore, that some of my colleagues in this House who are good socialists should have forgotten the small man and have taken up the cudgels on behalf of finance companies. I think the reason for this is that my colleagues are labouring under the misunderstanding of what a finance company is. In this connection, Mr Speaker, Sir, may I be allowed to read the definition of "finance company" in clause 2 of the Bill:

`"finance company" means any company licensed under this Act, to carry on financing business, and all branches and offices in Singapore of such a company shall be deemed to be one finance company for the purposes of this Act;'.

We must now go further down and read what the definition of "financing business" is:

`"financing business" means the business of -

(a) borrowing money from the public, by acceptance of deposits and issuing certificates or other documents acknowledging or evidencing indebtedness to the public and undertaking to repay the money on call or after an agreed maturity period, which period shall be not less than one month of the original acceptance of any deposit; and

(b) lending money to the public or to a company deemed to be related to the finance company by virtue of section 6 of the Companies Act, 1967 (hereinafter in this Act referred to as the "related company") on the basis that the public or the related company undertakes to repay the money, whether within an agreed period of time or not, or by instalments;'.

Therefore, Mr Speaker, Sir, it is very clear from this that a finance company is a company that borrows money from the public and lends money to the public: that is, a company that makes use of the public's money by borrowing and lending and in the process makes a profit. If it does not borrow money from the public, it is not a finance company. So in order to fit in with the definition, it must borrow money from the public and lend money to the public. When a company borrows money from the public and makes use of that borrowed money to make a profit, it must accept a certain degree of control. If, however, it makes use of its own money and does not borrow money from the public, it does not come within the definition and it can do what it likes. It can establish a limited company and throw away its money by taking unnecessary risks and nobody will complain, much less the Government. But finance companies are not making use of their own money; they are making use of the public's money. The Government has a responsibility to the public and must see that the small investors are not - to use a common phrase done in. Therefore, if finance companies want to make use of the public's money, they must accept certain responsibilities and must equally accept a certain degree of control.

Without exception, all finance companies are, as far as I understand, limited companies. In law, if a limited company fails, who is responsible? Nobody. The shareholders or contributors of the company are only responsible to the extent of the unpaid portion of the shares which they hold and generally these shareholdings are very small and normally they are fully paid up. So when a finance company, which is normally a limited company, fails, who is responsible? Nobody. The shareholders have fully paid up their shares. They will say, "It is just too bad. The company has run unnecessary risks and it has failed." You can only get hold of their common seal. The directors are not responsible, unless, of course, they can be prosecuted under the Companies Ordinance for fraud, and it is always very difficult to prove fraud. Even if you succeed in the prosecution and send them to gaol, what does it benefit the poor investor? It is small consolation and cold comfort to a small investor who has lost his life savings to see the director of a finance company sent to gaol. In this connection, I must point out that even finance companies which are subsidiaries of reputed banks stand in the same legal position. They may be subsidiary companies but they are separate legal entities. If a subsidiary company fails, the parent company, which is a bank, is under no legal obligation to come to its aid. In this connection, Mr Speaker, Sir, perhaps I may be allowed to quote a passage from the Minutes of Evidence taken before the Select Committee on the Companies Bill. I refer to the Report of the Select Committee on the Companies Bill [Parl. 11 of 1967]. I quote from column 37 at page B 19 of the Minutes of Evidence. As you know, Mr Speaker, Sir, I was on this Committee and this is what I said:

`...Surely a wholly-owned subsidiary - a finance company - would also be a limited company. The bank is legally in the clear. Although, according to what you say [meaning what the witness says], there is moral responsibility, surely moral responsibility is just not good enough. We want legal responsibility for the protection of the depositors.'

And in the Select Committee you, Sir, as Chairman, said:

`I think Mr Tang's point is simply this. You make use of a bank's good name in your advertisements to get deposits for that bank's wholly-owned subsidiary finance company. You utilise the bank's good name without any legal liability on the part of the bank. Let us say today you have the Pasir Panjang Bank Ltd. It owns a subsidiary finance company called the Pasir Panjang Finance Ltd. You see irs the papers advertisements by the Pasir Panjang Finance Ltd. stating that it is a wholly-owned subsidiary of the Pasir Panjang Bank Ltd. So there full advantage is taken of the bank's, good name and that may well be the only reason why the public deposits with that finance company, rather than with an index pendent finance company. But, at the same time, the bank is not in any way legally liable should its finance company fail. A bank may have the advantage of that finance company without any of the attendant disadvantages. That is the point, is it not, Mr Tang?'

And I replied, "That is right." The witness then said:

`Mr Speaker, although there is no legal. liability on the part of the bank, the moral responsibility here, however, is very grave.'

You went on to say, Mr Speaker, Sir:

`I think we accept that. But Mr Tang's point of view is that, if a finance company that is a wholly-owned subsidiary of a bank, fails, it will be poor consolation to the depositors who have lost money even if that, finance company has had the bank's moral. backing.'.

And that is exactly the position with regard to a finance company which is wholly owned by a bank. I think it was very well put, Mr Speaker, Sir, when you said that it was cold comfort to the depositors.

Banks are strictly controlled because they also make use of the public's & money for re-lending and in the process make a profit. In the same way, the finance companies do that on a smaller scale. If banks are controlled, why should not finance companies also accept some control?

Mr Speaker, Sir, I think most of the complaints of my colleagues about this. Bill centre on clauses 19, 20 and 21. These are restrictions on the type of business that a finance company can enter into. I think these complaints arise from a misunderstanding of the functions of a finance company. If a company professes its business to be that of lending money to the public, and borrowing and using the money for relending, why should it be allowed carry on all sorts of trade, especially import and export, which, unless you are in that line, is a very risky sort of business? Again, why should a finance company be allowed to hold more than 25 per cent of its equity capital in the shares of any of the under takings listed under clause 20 of the Bill? Clause 21 does not prevent a finance company from holding immovable property as long as such property is held as security and not as assets.

I think another complaint is that finance companies are required to keep a certain liquidity ratio. Again, I see no reason why this should not be done. If banks have to hold a minimum liquidity ratio, I see no reason why finance companies should be an exception.

There are one or two minor complaints that I can voice. One of these complaints, which I made in the Budget debate, is the need to introduce legis lation to control hire purchase, which is the other side of the finance company's business. The other minor complaint is the unhappy drafting of some of the clauses of the Bill, especially clause 17. But as far as the main aim of the Bill in controlling finance companies for the proper protection of the small investor is concerned, I am in hearty agreement with the Government, and I support the Bill unreservedly.

6.19 p.m.

Dr Goh Keng Swee: Sir, the Member for Choa Chu Kang was quoting from the proceedings of the Select Committee on the current Companies Bill in which the topic discussed was finance companies which are subsidiary companies of banks, and it was regretted that banks had only a moral obligation and not a legal obligation to support the finance company, so that the finance company could use a bank's name and in that way attract deposits. Here, Sir, in today's Straits Times there is an advertisement, presumably inserted by one of the big local banks, which disclaims all connection with a finance company with a similar name. May I read you excerpts from this advertisement which appears on page 20 of today's Straits Times?

`THE OVERSEAS UNION BANK LTD, and the OVERSEAS UNION GROUP offer to their customers a comprehensive range of services ... etc. OVERSEAS UNION BANK LIMITED and its wholly-owned subsidiaries: OVERSEAS UNION BANK NOMINEES LTD. OVERSEAS UNION INSURANCE LTD. OVERSEAS UNION ENTERPRISE LTD. OVERSEAS UNION GARDEN LTD.

To save confusion, may we point out that THE OVERSEAS UNION BANK LTD, and the OVERSEAS UNION GROUP have no connections whatsoever with the OVERSEAS UNION FINANCE LTD. of Singapore.'

Sir, when things have reached such a pass, that finance companies resort to this kind of dubious practice, I think it is absurd to suggest that we refer this Bill to Select Committee in order to allow more scope for rather dubious characters to engage in this kind of dubious practice. So I am afraid I cannot agree with the proposal from Mem bers to refer this Bill to Select Committee, as there is urgent need to see that control is instituted forthwith over finance companies. In so saying, may I repeat again that I do not regard all finance companies as of a doubtful character? I have stated in my speech on the Second Reading that they do perform a useful role in society and that we should try to allow them to fulfil this useful role. The Member for Have-lock and the Member for Choa Chu Kang have so clearly and so forcefully put the case for control of finance com panies that there is very little for me to say, without repeating what they have already said.

But I do wish to refer to the points made by the Member for Havelock. He said that we should not try to control how people should lend their own funds. That is not the case. We are trying to control the means by which people lend other people's funds. It is all right if you speculate and make money; or if you speculate and go bankrupt. No one is going to stop you one way or the other. But we must make sure that you do not endanger other people's money, and that when you borrow money from the public, you invest it wisely and securely, and that abuses of various kinds whereby directors of companies can make use of other people's money to get rich, must stop. This is the cardinal principle underlying this Bill.

Critics of the Bill have said that it will bear very harshly on finance companies and many of them may close down. On the one hand, they say that these companies are essential to the economy and that they are being well run. In fact, the Member for Ulu Pandan claims that in many cases their liquid position is even better than that of the banks. If that is so, what have they got to fear from this control?

Many Members have stressed the need to safeguard the interests of small borrowers who are traders or small industrialists and have to go to finance companies for finance. I can give an assurance that we will do everything to safeguard the interest of small borrowers from finance companies, be they small traders, fishermen, or small industrialists. What we want to prevent is the wrong or inappropriate investment of other people's money either in non-liquid or in speculative ventures.

The Member for Tampines says that the Commissioner for Finance Companies is a powerful man. Of course, he is a powerful man. He needs the power to control finance companies. How are you going to ensure that adequate control is exercised over these people if the Commissioner does not have these powers? But what the Member for Tampines has not said is that these powers are unnecessary. He says that civil servants cannot tell finance companies how to make a profit. I agree with him. But we can tell finance companies how their assets can be secured so that when their depositors want their money back, it can be forthcoming.

The Member for Tampines also asks: do other countries have similar powers in their legislation? The answer is: in other countries finance companies are not allowed to be established. You have to establish a properly-run bank, which is subject to all the controls which a central bank exercises over people who take in deposits and lend out deposits. It is only here, due to a lacuna in the law, that these finance companies have been allowed to be established. We cannot get them under the Moneylenders' Ordinance. We cannot get them under the Banking Ordinance. Therefore, it is necessary to introduce new legislation to control them.

The Member for Jalan Kayu has not made any new points. I think he has repeated the points made by previous speakers, and I think the Member for Havelock and the Member for Choa Chu Kang have adequately answered all his points.

There is one point raised - that there is fear that there will be unemployment as a result of Government control of finance companies. Why should there be unemployment? Unless, of course, some of these finance companies are found to be unsound, then they have to close down. If that is the case, it is better that they close down early so that fewer depositors lose their money than that more people are stung.

The Member for Mountbatten, I think, has made some valid points. He says that we must ensure that the small businessmen who go to finance com panies for credit are not endangered. I have already given this assurance. Then he mentions housing investments and says that many finance companies invest in housing projects, and that this practice is disallowed in the Bill. Precisely so - you cannot take other people's money and invest it in long-term projects, money which the lender is entitled to have back, it is difFerent if you use your own money. If a group wants to invest in housing so that there can be better and more houses, the proper way is to use its own money to float a company and invite public sub scriptions for shares and use the capital to build the houses. You cannot use short-term deposits in building houses.

Unsecured loans have been limited to $1,000, and many Members, both critics and supporters, think that this may be too small. I am prepared to look into it. But at present you cannot say to what extent the finance companies are, in fact, helping the small traders or small manufacturers. We just know nothing about the way these finance companies operate. My Ministry tried to get some information and asked for returns. These com panies refused to give any returns, so we just do not know what they are doing, and how they are investing their assets. Once this Bill becomes law, it is my intention to call upon all these companies to furnish me with the fullest details of how they have been investing their money. If it so turns out that a small trader or small manufacturer will suffer considerably by the limitation of unsecured loans -

The Minister of Defence (Mr Lim Kim San): None.

Dr Goh Keng Swee: - then I am prepared to reconsider the matter. But my colleague and predecessor, the Minister of Defence, under whose skilful hands this Bill was produced, says none. He is also an experienced banker. All the same, we will give the benefit of the doubt to the Back-benchers who claim that small traders will be affected and, if that is the position, we will have a second look at this particular clause. In the meantime, this Bill must go through and controls must be imposed.

Mr Rajoo rose -

Mr Speaker: Mr Rajoo, you have already spoken.

Mr Rajoo: I think the Minister has not answered my point, and that is, to include the "chit fund" companies under this Bill. As he has explained just now, these companies come under the category ---

Mr Speaker: Order. You are making a second speech, Mr Rajoo. You can perhaps raise the matter in Committee.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Dr Goh Keng Swee].

Bill considered in Committee.

[Mr Speaker in the Chair]

6.34 p.m.

Clauses 1 to 16 inclusive ordered to stand part of the Bill.

Clause 17 ---

Question proposed, "That clause 17 stand part of the Bill."

Mr Tang See Chim: Mr Speaker, Sir, I agree with the aims of clause 17 in controlling the dealings of finance companies. My only complaint is that the clause is not happily drafted, it is rather vague. Clause 17 (1) reads:

`No finance company shall ---

(a) accept any deposit which is repayable on demand by cheque, draft or order;'.

I do not quite know what this means, if it is the intention of the paragraph that deposit accounts in finance companies should not be drawn on by the depositor by the use of cheque, draft or order, it should be expressly stated.

With regard to paragraph (c) . Sir, the granting of unsecured advances to

'(i) a firm ...

(ii) any other person or body of persons whether incorporated or not.',

I am of the opinion that legally it is comprehensive enough to say that no finance companies shall grant unsecured loans to any person or body of persons whether incorporated or not, it embraces everybody - persons, companies, firms or what have you. It is unnecessary to have the first paragraph which expressly defines a firm in which a director of a finance company is interested, etc. These are my complaints about the drafting. They have nothing to do with the aim or the intention of this clause to control finance companies .

Dr Goh Keng Swee: The intention of clause 17 (1) (a) is as stated by the Member for Choa Chu Kang. I do not know how it can be redraf ted in a happier way. I would have thought that, as it stands, this is to describe a bank account which is operated by payment on demand by cheque. If the hon. Member can propose a happier form of words, I am sure the House will be willing to consider it. I thought that there was some ambiguity about paragraph (a). It looks a bit odd, I confess. But on deeper reflection, I think the meaning becomes clear. My colleague, the Minister for Law, might want to comment on this. It is not really within my professional province.

As regards clause 17 (1) (c), what the Member said is quite true. But I think the intention of the law officers who drafted it is to draw attention to the fact that the director, agent or manager of a finance company is not exempted from these restrictions. I think the intention is to make it clear beyond all doubt. I do not know whether my colleague, the Minister for Law, can perhaps elaborate on this.

The Minister for Law and National Development (Mr E. W. Barker): The object of clause 17 (1) (a) is to prevent finance companies from acting like banks. Hence, anyone who deposits money with a finance company cannot get it back, as it were, on demand by writing out a cheque, as one does with a bank account. You deposit money in a bank which issues you with a cheque book, and by writing out a demand note by cheque, draft or order, you can immediately draw on that account. This is the object of clause 17 (1) (a) . I myself cannot see how it can be drafted in a better way. It does not prevent finance companies from returning money by cheque, draft or order. One deposits money not for immediate return but for return after three months, six months or a year, when it can be done by cheque, draft or order. What clause 17 (1) (a) seeks to prevent is a deposit followed by an immediate demand for payment by the depositor.

As far as clause 17 (1) (c) is concerned, I need not add more to what the Minister for Finance has said. It is aimed at everybody. But the drafters felt it would be safer specifically to mention partner, manager or agent or any individual or firm of which any of its directors is a guarantor. This is to prevent ambiguity, and it is to make sure that these people do not get away with it that they are specifically mentioned.

Mr Tang See Chim: Mr Speaker, Sir, the Minister for Finance has asked whether I can propose a happier set of wording. Unfortunately, I have not given notice of an amendment to this paragraph (a). But with your consent and with the general assent of the House, I can do so.

The Chairman: Mr Tang, before I give consent, may I offer a little comment? The words "cheque, draft or order" to my mind clearly refer to the means by which the "demand" is made,, and not to the means by which repayment is made. If you agree with that, interpretation, you may not wish, at this-stage, to seek to introduce an amendment. In any event, I take it the Minister will want to consult professional opinion in the Attorney General's Chambers before he expresses any views or accepts, any amendment from you at this stage.

Mr Tang See Chim: As you please, Mr Speaker, Sir.

Question put, and agreed to.

Clause 17 ordered to stand part of the Bill.

Clauses 18 to 27 inclusive ordered to stand part of the Bill.

Clause 28 -

The Chairman: Mr Rajoo, sub-clause (2) will give you an opportunity to say what you wanted to say a few minutes, ago on "chit fund" companies.

Question proposed, "That clause 28, stand part of the Bill."

Mr Rajoo: Mr Speaker, Sir, thosecompanies which have "chit" funds need not come under the Banking Ordinance or under the Moneylenders Ordinance. Therefore, these companies are registered as limited companies and the directors are not doing business in the best interest of the public. I understand that when some of these limited companies were registered, certain banks gave a guarantee to them. When cheques were issued by these companies to their depositors, the same banks returned the cheques dishonoured because of insufficient funds. So I would suggest to the Minister that in the public interest these "chit fund" companies should also be brought under this Finance Companies Bill.

6.45 p.m.

Dr Goh Keng Swee: Sir, the Companies Act, which has just been passed by Parliament, provides under section 38 certain obligations in respect of com panies which invite the public to deposit money and there are certain obligations laid down under this Act to ensure that some control is exercised over them. I am not sure whether the companies referred to by the Member for Farrer Park would not come under the provisions of this Bill, because finance business is defined as borrowing money from the public, and this is exactly what these tontine companies do. They lend money to the public. I would have thought that it could be that these `companies would fall under the provisions of this Bill. This is really a rather legal technical point and perhaps the Minister for Law and National Development may come to the rescue again.

The Chairman: Mr Rajoo, is there anything you wish to say further?

Mr Rajoo: I have not got anything further to say. But as the Minister for Finance has requested the Minister for Law and National Development to look into the matter, I hope he will do so.

Mr Barker: Sir, these tontine companies, which the Member for Farrer Park is rather worried about, will be caught by section 38 (1) of the Companies Act which was read for the Third time a few hours ago. Section 38 (1) provides that:

'An invitation to the public to deposit money with or lend money to a corporation or proposed corporation shall not be issued circulated or distributed by the corporation or by any other person unless -'

paragraphs (a), (b) and (c) are complied with.

Section 38 (9) provides for heavy penalties - 'conviction to imprisonment for a term not exceeding two years or to a fine not exceeding five thousand dollars.'

I doubt very much whether these tontine operators will be caught by the Finance Companies Act which strictly covers finance companies which borrow money and then lend it out. A tontine operator does not strictly borrow or lend. What he does is to invite people to subscribe to a certain fund and then it is more of a debt. I say $20, you say $21, someone else says $22, and the highest bidder gets the money for the month, after which he has to return a fixed sum. It is a group of people getting together, putting in a certain sum a month, and every month someone takes it away. All the operator does is to get his little commission. So, strictly speaking, he is not borrowing and then lending out. They are all perhaps borrowing and lending to one another. I doubt whether they would be caught by the Act. I may be wrong but, in the final analysis, it is for the courts to decide, and if we are wrong here, we can always amend our laws.

Mr Lee Teck Him: (In Mandarin): Sir, I would like to say a few words on tontine organisations. These organisations originated out of some moral responsibility for friendly mutual aid. For instance, if I am short of $2,000 for business, I gather a few friends together and form a tontine organisation. The purpose is to help myself to run my business. But nowadays people are different. They make use of this sort of organisation to swallow up other people's deposits. Once the leader has collected the money, he runs away. So there should be a law to control tontine organisations. Originally, the purpose of tontine organisations was very good. It was for mutual assistance. But now it is different. Nowadays the morals of the people are quite different from what they were in ancient times. So in law, we should have some measures to prevent people from a breach of faith by running away with the money deposited by their friends.

Mr. P. Selvadurai (Bukit Panjang): Sir, now that we are talking about tontines, I agree with what the Hon. Minister for Law and National Development has stated just now, that this Act does not catch tontine operators. In fact, I think there is a dubious line of common law authority which says that tontines are illegal as they are against public policy. In any event, I think there is a case that at some future session of Parliament, measures should be introduced in Parliament to control tontine operators and regulate this kind of business, because tontines also satisfy certain social and economic needs in Singapore. I think a study is being made by the Faculty of Law of the University of Singapore and perhaps we will have the time to go into it.

Mr Rajoo: Sir, I am a bit disturbed by the Minister for Law and National Development's reply that he cannot do anything about this "chit" fund. In fact, I am not asking him to look into illegal tontine organisations, but these are companies which are registered under the Companies Ordinance or some other law, and they seem to operate in a way which is not in the interest of the public. The public subscribe to these "chit" funds. Say the tontine is for $20 a month. They subscribe to the tontine. They put their savings into these com panies. Finally, after paying for 10 or 12 months, these people are informed by the operator that he is not going to pay back their deposits. This is something which the Government should look into, in order to safeguard the interest of such people. If there is no law at present to control tontine organisations, then the Minister should introduce legislation or amend the law to control them.

Dr Goh Keng Swee: Sir, I always thought that tontine operators were small-time people, domestic servants and such types. This is the first time I hear that they have formed a limited company. If, in fact, they have formed a limited company, then they will fall under section 38 of the Companies Ordinance provided, of course, the Member for Bukit Panjang is not correct in saying that these activities are illegal in law. Assuming that they are legal and they are registered, then they will come under section 38. Subsection (7) of section 38 gives the Minister authority by notification in the Gazette to specify terms and conditions subject to which subsection (6) of this section shall have effect. In other words, the activities and terms upon which these transactions are conducted can be regulated by the Minister; in this case, the Minister for Law. So the Member for Farrer Park need not despair. Of course, all this is on the assumption that these activities are legal. If they are illegal, then such companies cannot be registered.

Question put, and agreed to.

Clause 28 ordered to stand part of the Bill.

Clauses 29 to 45 inclusive ordered to stand part of the Bill.

The Chairman: After that interesting debate, I must refer to a very mundane matter. A spelling correction is to be made in the Long title. In the word "licence", the letter "c" where it occurs, for the second time should be an "s". This error will be corrected.

Bill reported without amendment; read a Third time and passed.