Loan sharks and shady moneylenders are a pervasive threat to foreign domestic workers in Singapore. Here’s why you must be vigilant in avoiding them, and how to help your helper if she gets into trouble
In this ongoing series on migrant domestic workers’ rights, Karien van Ditzhuijzen from HOME talks us through important aspects of hiring, managing and looking after a foreign domestic worker – from knowing your rights and your duties, to dispelling urban myths.
Blood or red paint smeared on doors, pig heads thrown into corridors — there are plenty of horror stories about loan sharks in Singapore and worst of all, many are true. Domestic workers usually come into Singapore with a large debt to start with, and are vulnerable to be preyed upon: they have little money to spare, are easily influenced, and not always educated enough in maths to realise the deal on offer is a bad one.
As an employer of a domestic worker you have reason for concern, because if your domestic worker won’t be able to pay off her debt, a lender might come looking for you next. It is therefore important to discuss the issues surrounding both legal and illegal money lending upfront. We’ll take you though the facts.
Read more: Myths and Facts about the Helper Security Bond
A first step for most foreign workers in need of quick cash is to approach a licensed moneylender. There are plenty to be found in popular domestic worker haunts like Lucky Plaza and Paya Lebar as well as online. Many specifically target domestic workers, and they all promise quick cash and long repayment schedules. Although these places are legal, they are not as innocent as they seem. Using aggressive marketing, they make borrowing money seem easy and cheap, but this is generally far from the truth. There are costs to lending; licensed moneylenders usually charge an interest around 2- 2.5 %.
But the bigger risk of getting involved with these lenders is to get trapped in a debt cycle: borrowing from more and more lenders to pay off the fist debt, resulting in an accumulated amount. Since this year there are new laws in place to protect migrant workers against themselves – they are not allowed to borrow more than a total of 1500 dollar from all legal moneylenders combined.
When a domestic worker is not able to repay her loan and can no longer turn to legal lenders, she is at en even higher risk to fall prey to a loan shark. Loan sharks offer loans without full disclosure of the terms and conditions, and when you default on your payments they hound you, calling and texting and threatening violence.
Interest rates of loan sharks can fly up as high as 10 or 30% and when the loan cannot be repaid things can get very ugly indeed. Most loan sharks will ask for proof of identity, and the name and address of the employer are written on a domestic worker’s work permit – they will not hesitate to approach the employer if the DW fails to pay up or leaves the country before the total is settled.
Loan sharks are targeting domestic workers aggressively by using social media, Facebook, Whatsapp, or by making their victims work for them by recruiting more and more friends to borrow money as well. Loan sharks take on high-risk loans from people whose financial status is too insecure for a regular moneylender to touch, but the price tag of the interest rate – as well as the associated dangers – are high.
Some domestic workers have little financial education, making them an easy target for criminals to deceive. There are examples where they are roped in with promises of quick moneymaking schemes, for example where a domestic worker buys into a product that she needs to sell. A loan is needed as start up money, which is quickly produced by an associated loan shark. It all sounds too good to be true, and usually – it is.
Not only are domestic workers not allowed to earn any money outside of their regular job, there is a large financial risk here, too: if the business venture fails she will be stuck with a significant debt and no means to pay it back.
Read More: Why Your Helper Should NOT be Part of the Family
Working as an illegal moneylender
There are also cases of the opposite scenario: domestic workers using their savings to lend money to friends, at an interest. Of course there is nothing wrong with helping a friend out with some spare cash, but as soon as multiple large amounts as well as interest are involved, the domestic worker has become an unlicensed moneylender herself.
Sometimes domestic workers are recruited as runners for illegal loan sharks, by recruiting their friends to lend and also to carry out unsavoury tasks like throwing paint on doorsteps.
There can be severe consequences if MOM and the police find out, as illegal moneylending is taken very seriously in Singapore. Fines, imprisonment, caning – some of the penalties for aiding unlicensed moneylenders. At the very least, their work passes will be revoked.
A domestic worker does not need permission from her employer to take out a loan, but there can be consequences for the employer as both licensed and unlicensed lenders might come after the employer if the DW fails to pay. They see the employer as a sort of guarantor, even though the employer might have no knowledge of the loan. The fact that the name and address of the employer are written on the work permit means the lender has the employer’s details as soon as the domestic worker shows her identification.
What is the responsibility of the employer if the domestic worker gets involved in illegal actions herself? As per MOM regulations, an employer is not responsible for a worker’s illegal actions unless they are aware of them and condone them. Which means that as soon as you find out that your domestic worker is engaged in such things you need to make sure she stops them immediately, or you could be implicated yourself.
Read more: Helper Rights and Employer Responsibilities
Communication is key!
So how can you, as an employer, make sure your helper is aware of the problems associated with both licensed and unlicensed money lending?
Key, as always, is good communication. Sit down with your helper and explain the risks of both borrowing and lending money. Make sure she knows about loan sharks and unlicensed moneylenders and how to identify them. She should not reply to any messages offering instant cash loans without documentation.
Make her aware of the high costs that are paid in interest, and the different types of lenders as well as scams that are common. There is no such thing as easy money!
Encourage your helper to come to you if she has money troubles. You can make it clear that this does not necessarily mean that you will lend her money yourself, but that you will always be there for her to support her in making the best decisions regarding her finances.
Of course, particularly in emergency situations, you could consider giving her an advance on her salary or even a loan, but rather than encourage her to be in debt (whether with you or a lender) it is important to teach her to manage her finances responsibly.
HOME, as well as several other organisations like FAST and AIDHA, offer courses in financial literacy that can help her in this.
Read more: Sassy Mama Supports: AIDHA Singapore Helper Education
Has your domestic worker fallen prey to a loan shark?
Report the loan shark to the police, by filing an official complaint. To make it harder for the loan shark to find you, change both your and your helper’s phone numbers. If you worry about them visiting you, consider installing CCTV at the front door – if they do so you will have additional evidence to convict them.
To read more from Karien’s FDW series, click here!