1. Introduction
Most of the finance companies in Singapore started in the 60s due to an increase in the demand of consumer credit. This increase was due to the growing affluence of the society and the rising expectation in the standard of living. The rising income resulted in higher savings that were deposited in banks and finance companies to earn interest. The rising expectation in the standard of living causes an increase in demand for loans to buy big ticket items like automobiles and consumer appliances on a hire purchase basis. Another reason was the cartel (subsequently removed) of bank interest rate and to overcome it, banks set up subsidiary finance companies to compete for deposits by offering higher interest rate.
Prior to the enactment of the Finance Companies Act in 1967, finance companies were enaged in a wide range of activities which included collecting deposits, granting of loans, trading, dealing in real estate, and speculating in shares. To safeguard the interest of the depositors, the Act was introduced and came into effect in January 1968.
In the 70s, there were 36 finance companies but that number reduced significantly over the years due to several changes in the regulation of the industry. First, is the enactment of the Finance companies Act in 1968. Next, the liberalizing of the interest rate rendered the subsidiary finance companies of banks redundant. Finally, an amendment of the Finance companies in 1994 which requires Finance companies to have a minimum capital of S$50 million within 8 years causes a major shakeup to the industry with many of the finance companies to be absorbed into their related banks. Smaller independent finance companies gave up their license. As of today, there are 3 finance companies? Hong Leong ...