CHIT FUNDS BILL

Order for Second Reading read.

6.11 p.m.

The Minister for Finance (Mr Hon Sui Sen): Sir, I beg to move, "That the Bill be now read a Second time."

Although the first chit fund company was established in Singapore as early as 1964, chit funds have only established their popularity within the last few years. At present, in addition to the 29 companies officially registered with the Registrar of Companies as operating chit fund business, there are more than a hundred unofficial chit fund companies in Singapore.

The chit fund is very similar to hwei and kutu which are familiar to the Chinese and Indian communities respectively. In brief, a chit fund operates in the following manner. Each chit fund member contributes a fixed sum of money for a number of fixed periods - per week or month, as the case may be. The total contribution to the chit fund amount per period will then be pooled and auctioned among members. The member who offers the highest interest will be awarded the pool. The amount to he received by the successful bidder is the total pool less:

(a) a 5 per cent collection charge, usually levied by the chit fund company, and

(b) the interest offered by the successful bidder.

A successful bidder is precluded from making a bid in subsequent auctions but he must continue making his periodic payments.

With the rapid proliferation of chit fund operators who collect substantial sums of money from the public, it is now necessary to bring in legislation to control and regulate chit funds.

The Bill before the House is based on Ceylonese legislation with modifications to suit our local conditions. The main features of the Bill are:-

I.Control and licensing

A Commissioner of Chit Funds will be appointed, under clause 3, to administer the law and to control the activities of chit funds. It is envisaged that the functions of the Commissioner will be taken on by the Monetary Authority of Singapore. Chit fund operators will be required to apply for licences, and clause 4 of the Bill provides for licences to be issued to public companies only.

II. Security of deposits

In order to safeguard the interest of chit fund members, chit fund companies will be required to have a minimum paid-up capital of $200,000, a proportion of which will be required to be invested in approved assets. Furthermore, under clause 21 of the Bill, it is required that an additional security will have to be deposited with the Commissioner based on the chit fund amount. As an additional safeguard, the total amount of business that a chit fund company can transact in relation to its paid-up capital will also be regulated. This is contained in clause 42.

These requirements are considered necessary so that the chit fund companies not only will have sufficient working funds but also will be committed to a very large extent in ensuring that their business is properly and effectively run and managed. While appreciating that some companies will have difficulties in meeting the capital requirements prescribed, the protection and safeguard which these provide cannot be disputed. Clause 62 allows for an initial transitional period of some six months before compliance with the Act, but if circumstances warrant, individual extensions will be considered. Ultimately, however, it is our objective to see that stronger financial units are evolved. Companies that may be adversely affected by these capital requirements would be well advised either to increase their capital or consider mergers and amalgamations if they wish to remain in business.

I wish to emphasize that due care and diligence should be exercised by persons managing chit funds, as the money collected by them is held in trust for the benefit of members. This is provided under clause 38 of the Bill, which stipulates that chit fund companies shall be liable to members for the contributions made by members.

I am confident that with the passing of this Act, there will be sufficient protection to members participating in chit funds.

A summary of other provisions of the proposed legislation can be found in the explanatory statement attached to the Chit Funds Bill.

Sir, I beg to move.

Question proposed.

6.20 p.m.

Mr Hwang Soo Jin (Jalan Kayu): Sir, as far back as January 1970, prompted by complaints from a number of my constituents, I urged the then Minister for Finance in this House to consider introducing suitable legislative measures to control the activities of chit fund companies. It has taken the Government almost two years to come to a definite decision. Whilst the careful manner in which the Ministry has studied the activities of such companies is most commendable, it is regrettable that the delay has caused a number of our citizens, some of whom are my constituents, to lose financially at the hands of unscrupulous operators. However, I suppose it is better late than never.

Since the details of the Bill were published, they have attracted quite considerable public attention. In general, it is agreed that the provisions are quite adequate to protect the interests of the public and also sufficiently flexible to enable existing chit fund companies to operate.

On the point of minimum capital requirements, there are, however, two schools of thought. The Bill provides that no chit fund company shall be granted or shall hold a licence unless its paid-up capital is not less than $200,000. We have in the past weeks seen in various newspapers large advertising spaces taken up by chit fund companies giving enthusiastic support to the proposed Bill. On the other hand, we have also read reports that some companies are not particularly happy over the fact that the required paid-up capital should be more than $50,000 which, I understand, was originally intended. These two opposing reactions lead me to suspect that the $200,000 as stipulated is perhaps a little heavy for the smaller companies but negligible to the big ones in relation to their respective volumes in turnover. I think it may be more equitable to all concerned if a graduating scale of required capital is to be prescribed under the Bill; starting from a minimum of, say, $100,000 to a maximum of, say, $1 million, depending upon the volume of business handled by the company concerned. To the larger companies, the maximum of $1 million, in my opinion, is by no means excessive if we are to: bear in mind that some of these companies have a volume of business running into millions of dollars.

By and large, the Ministry is to be congratulated on the comprehensive nature of the Bill which, if properly enforced, should achieve the objective of safeguarding the interest of subscribers. However, I would like to take the opportunity of inquiring from the Minister whether the Commissioner of Chit Funds will be given a team of inspectors to carry out surprise checks on the books of registered companies so as to ensure that all aspects of the law are complied with at all times.

Finally, Sir, it seems to me a pity that the Bill makes no provision for chit fund companies to invest compulsorily a percentage of the funds in hand in approved forms of assets such as Government securities and selected counters in the Stock Exchange. By so providing, it would, I feel, be possible to raise the level of respectability and the economic functions of chit fund companies, in terms of their ability to contribute to our national economy, to the same level as that of established institutions of national savings such as banks, insurance companies and finance companies. Whilst I agree that chit fund companies are rendering excellent services to traders, hawkers, farmers and householders in need of short-term credit facilities for legitimate business or domestic purposes, I cannot help but feel that they are also financiers of gamblers and spendthrifts and that the excessive credit facilities generated by their operations, if not carefully watched and controlled, are most likely in the long run to contribute to the rising cost of living and inflationary trends in our economy.

6.25 p.m.

Mr P. Govindaswamy: Sir, the Chit Funds Bill is a very commendable and timely move in the right direction and our citizens will be protected from the fly-by-night operators.

Unfortunately, I feel that the requirement of a minimum paid-up capital of $200,000 for chit fund companies is too large a sum, as has been mentioned by my colleague, the Member for Jalan Kayu. This sum deposited with no interest is a terrific burden on the existing small companies which may have to close down and, as a result, this may affect the contributions of the existing subscribers of these small companies.

Furthermore, clause 12 of the Bill forbids the merger or consolidation of chit fund companies. Therefore, I feel that clause 9 only helps the big-time operators to monopolise the business.

I therefore suggest that the minimum capital requirement be reduced to a more reasonable sum, say $50,000 or capital with reference to the company's assets, thereby allowing the existing small companies to carry on their business. This will also give confidence to the existing subscribers of these companies.

As regards clause 7 of the Bill, I wonder whether the Minister could include another condition that only Singaporeans can apply for a licence to operate a chit fund company, because these companies are mainly run for Singaporeans and should be managed by Singaporeans only.

6.27 p.m.

Mr Cheong Yuen Chee (Toa Payoh): Sir, I rise to speak in support of the Chit Funds Bill whose provisions are not only comprehensive but also timely. The Explanatory Statement describes the purposes of the Bill - to license and control chit fund companies for the protection of the subscribers. It remains to be seen, however, whether the ingenuity of any chit fund company would in the course of time be able to discover and exploit any latent loophole in the Bill to its own advantage and at the expense of the subscribers. The possibility of the perversion of the objectives of the Bill is not so farfetched as one would imagine when one considers the example of the Moneylenders Act which has been designed for the protection of the borrower, but which has practically strengthened the stranglehold of moneylenders on their unfortunate victims. I therefore seek clarification regarding some provisions of the Bill.

Clause 9 (1) of the Bill stipulates that the minimum capital requirement for any chit fund company to be accorded a licence shall be not less than $200,000. Such a minimum limit seems to be fairly substantial enough to afford a certain amount of protection to the subscribers of the companies. But in reality the protection so afforded is more apparent than real, depending on the scale of operations of the chit fund companies. A chit fund scheme with 100 subscribers each contributing $l0 weekly will be able to realise a total chit fund amount of $100,000 over a period of approximately two years. At five per cent of the chit fund value, the commission of the company in respect of this particular scheme alone will be $5,000. It does not require much effort to calculate that if a chit fund company operates 40 such schemes or a smaller number of schemes with a total chit fund value equivalent to $4 million, the commission of the company will be not less than $200,000. I am, therefore, happy to note that clause 61(1) (g) of the Bill empowers the Commissioner, with the approval of the Minister, to make regulations to prescribe the total value of chit funds to be conducted at any one time by the chit fund companies in relation to their paid-up capital. It is obvious from the illustration I have just given that the minimum sum of $200,000 may be practically sufficient for the protection of contributors in every given instance. There is a need for the regulations envisaged under clause 61, and I hope that they will come into operation within the shortest time possible of the passing of the Bill.

Clause 20 (4) of the Bill provides that no right or claim under any scheme or arrangement which only partakes of the nature of a chit fund within the meaning of this Act or regulations made thereunder shall, without prejudice to the provisions of clause 20 (1), be enforceable by action in any court.

Clause 20 (1) states that every scheme or arrangement which is not based on the essential terms and conditions set out in clause 24 shall, for the purposes of the Bill, be deemed only to partake of the nature of a chit fund. The cumulative effect of these two provisions and other provisions of the Bill, as I see it, is to penalise equally the culpable promoter and the innocent subscriber of a chit fund. Though there are four official languages in the Republic, it is nowhere provided in the Bill that every agreement made under clause 23 containing the terms and conditions set out under clause 24 should be written in more than one official language. I suppose that literacy or proficiency in only one language in our multi-racial republic is a misfortune and not a privilege; and that a subscriber to a chit fund whose agreement is written in the official language he cannot comprehend, must run the risk of being so deficient. All the same, it seems inequitable that the innocent subscriber, after being hoodwinked by a chit fund operator who has fraudulently omitted some of the essential terms and conditions prescribed under clause 24 in respect of any chit fund and thereby caused it to be deemed only to partake of the nature of a chit fund, should be debarred from having any recourse to a court of law. Such a subscriber apparently cannot, for instance, apply to the court for an order directing payment by other subscribers under clause 40 (2) (b), in the event of the termination of a chit fund or the failure of a chit fund operator to conduct the chit fund in accordance with the provisions of the proposed Bill. It would hardly be any consolation to a subscriber for the loss of his money invested in a chit fund that the chit fund operator and his agents are subsequently prosecuted for the fraudulent or improper conduct of the chit fund. I am sure it is not the intention of this House that any chit fund promoter or subscriber is to be permitted to suggest steps in making not enforceable by action in court the rights of claim of a subscriber as provided for under clause 24. A distinction should be made on the basis whether a subscriber has knowingly and wilfully been a party to the failure of a chit fund to comply with the essential terms and conditions set out in clause 24. The whole text of clause 24 seems to be an elimination of any scope for fraudulent practices by, for instance, apparently limiting a subscriber to one share per chit fund as inferred from paragraphs (b) and (1) of clause 24 (1). There is apparently no restriction on the number of chit funds in which a subscriber can simultaneously participate. It is, of course, in the general interest of every subscriber to a chit fund that he can freely invest in the chit fund. Nonetheless, apart from what I have earlier said in relation to clause 24, there seems to be a distinct need for a bona fide subscriber to be protected from his fellow subscribers whose financial credit may be suspect or who may be colluding with a chit fund operator. Clause 30, for instance, requires a subscriber to produce at least two guarantors before he can claim payment of the prize amount. There is apparently no prohibition against such subscribers mutually agreeing among themselves to be guarantors for one another. Thus, by means of such a mutual agreement, three subscribers can each claim payment of the prize amount in respect of three chit funds even simultaneously. It is highly probable that a reputable chit fund company may have ruled in accordance with clause 24 (2) (d) to prevent a subscriber from being a guarantor simultaneously. Moreover, under clause 61(2) (e) the Commissioner may, with the approval of the Minister, prescribe by regulations the nature of security to be given to the chit fund company by the subscriber purchasing a prize amount. Nonetheless it is rather alarming to me that the proposed Bill should provide a ready-made opportunity for dubious and shady chit fund operators and subscribers to make hay with the money of bona fide subscribers. Rather than leave it to the discretion and good business sense of chit fund operators, it may be advisable to include in the proposed Bill or the regulations thereunder, a provision requiring guarantors not to be subscribers who have purchased chit fund prizes themselves and who have not completed payment of contributions in respect thereof.

As I have said earlier, the provisions of the proposed Bill are as comprehensive as can be. Even though I find it necessary to seek clarification from the Minister regarding some provisions of the Bill, I have no doubt that bona fide subscribers require the protection that the Bill seeks to confer on them.

6.35 p.m.

Dr Augustine H. H. Tan: Sir, the main intent of this Bill is salutary and I welcome it for the protection of the small investor. However, I am wondering whether it is not too comprehensive in embracing the so-called hwei or tontine. The function of the tontine, usually run on a village level or among friends and relatives, is basically to make consumption loans available for festivals, wedding ceremonies or for educational purposes. I think the present Bill, by institutionalising the system, may penalise the small subscriber who cannot readily produce the two required guarantors, or who may be precluded from membership because he is not sufficiently creditworthy. Perhaps the Minister might want to consider exempting tontines with operations below a prescribed number of subscribers or sum of money from the provisions of this Bill. I would not like to see financial options foreclosed to low income people if they fail to meet modern institutional requirements. At the village level or among relatives and friends, social penalties are usually enough to deter tontine operators or subscribers from embezzlement of funds.

6.37 p.m.

Mr Hon Sui Sen: I am pleased to hear the views of Members on the Chit Funds Bill. The subject matter is one which has created a lot of interest and has highlighted the difficulties which the Ministry of Finance has been faced with. The reason why it has taken some time to prepare this Bill is that we were not quite sure whether chit fund companies should be legislated against altogether or to be legislated for in the manner in which we have done so. The comments which we have heard from Members show the variety of opinions on the: operation of chit funds, ranging from the suggestion that perhaps the capital requirements are not sufficient to the suggestion that we should allow tontine or hwei to operate because it is necessary for easy capital to be obtained in the rural areas. Our problem in devising the Bill was to fix a minimum sum which we thought would safeguard the interest of subscribers to the hwei or tontine or kutu or chit fund. Finally, we fixed $200,000 as the minimum capital requirement. This is as much a matter of judgment as any other sum. We did in fact consider $50,000 as has been suggested by one of the Members. We also considered whether we should not legislate on the operation of chit funds at all. Certain countries have decided that perhaps it is best not to legislate at all. The present law regards the tontine as illegal and the number of people who have absconded with the pool from very naive and innocent subscribers is quite well known to all Members. Finally we decided on the form in which this Bill was to be drafted. While I cannot claim that this is a perfect Bill, it has at least devised a scheme which I think is workable and which we will be prepared to revise in the light of future experience.

The Member for Jalan Kayu has suggested that there should be a graduated scale from $100,000 to $1 million, depending on the size of the chit fund operations. In fact, there is already some basis for varying requirements. Apart from the $200,000 deposit, there are provisions for a limitation in the amount of the operations and for further security to be given to the Commissioner. We have not put in any specific sum in the Bill, but this will be determined in the light of experience.

The Member has also suggested that we require a team of inspectors and hopes that they will be provided to administer the Act. I can assure him that, as we have legislated for administration of chit funds, it is our intention that the Monetary Authority of Singapore, whom I have said will be asked to administer the Act, will be furnished with the necessary inspectorate to administer it.

The Member has also pointed out that there is no provision for chit fund companies to invest compulsorily. We have suggested that part of their deposits should be invested in local assets.

The Member for Anson also referred to the deposit of $200,000. I have already answered this earlier. He thought the Act would help the big operators but would weigh heavily against the small operators and suggested $50,000 as the minimum deposit. He also suggested that perhaps the licences should be issued only to Singaporeans. In issuing licenses, we will give some weight to the character of the applicant, and if he is obviously not permanently attached to Singapore, it is possible to provide in the licence that certain conditions should be fulfilled. This is a matter which we will consider as we go along in the administration of the Act.

It has also been suggested that the agreement between the chit fund company and its subscribers should be in several languages. There is no reason why chit fund operators should not use different languages in explaining the operation of the chit fund to their subscribers. I am sure that those with business sense will find it useful. It would be advantageous to have explanations in different languages. But even in conveyancing of wills and property and so on, the English language is used and perhaps it is convenient that there should be only one legal and official version of the chit fund agreement.

The same Member has made a number of suggestions which I think will be very useful, and I will certainly consider them when this Bill becomes law.

I think I have covered most of the points made by Members.

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. - [Mr Hon Sui Sen].

Bill considered in Committee.

[Mr N. Govindasamy in the Chair]

6.46 p.m.

The Chairman: Unless there is any Member who wishes to speak on any particular clause, I propose to take the Bill by Parts.

Clauses 1 to 36 inclusive ordered to stand part of the Bill.

Clause 37 -

The Chairman: There is a note in the Order Paper

Supplement,

In page 17, line 21, to leave out "Chit" and insert "chit".

This correction will be made.

Clause 37 ordered to stand part of the Bill.

Clauses 38 to 45 inclusive ordered to stand part of the Bill.

Clause 46 -

The Chairman: There is a note in the Order Paper Supplement that a comma is to be inserted after the word "brokerage" appearing in page 22, line 4. This will be done.

Clause 46 ordered to stand part of the Bill.

Clauses 47 to 55 inclusive ordered to stand part of the Bill.

Clause 56 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 25, line 21, to leave out "is" and insert "being".

This is just a grammatical error.

Amendment agreed to.

Clause 56, as amended, ordered to stand part of the Bill.

Clauses 57 to 60 inclusive ordered to stand part of the Bill.

Clause 61 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 27, line 14, after "disposal", to insert "of".

This is an obvious error of omission.

Amendment agreed to.

Clause 61, as amended, ordered to stand part of the Bill.

Clause 62 ordered to stand part of the Bill.

Clause 63 -

The Chairman: There is a correction to be made to the marginal note in page 28, to leave out "association" and insert "associations". This will be done.

There is a consequential amendment to be made to the Arrangement of Sections in Page (iii), last line, to leave out "association" and insert "associations". This also will be done.

Clause 63 ordered to stand part of the Bill.

Bill reported with amendments; read a Third time and passed.