Non bank Financial Institutions Flashcards
(21 cards)
Non Banking FI in sg (4)
1 Hong Leong Finance,
2 Singapura finance,
3 Sing Investment,
Finance limited
3 Liscensed Finance companies w around 16 billion in combined assets
Finance companies are allowed to accept retail deposits and they are significant providers of loans to SMEs
Regulatory framework of NBFI
They are liscensed by MAS under Finance Companies Act
Min capital requirement - At least 50 million (Financial buffer)
Capital ratio - at least 12% of its total assets
Cash reserve ratio and liquid assets requirement
Merchant Bank (MCB): 3%
Min Liquid assets: 13%
FI vs Banks
Fi usually attracts riskier borrowers
-> People who got rejected by the bank
-> They charge higher interest on loans
Willing to make small loans, asking for less collaterals
-> Getting tighter due to competition for banks
Loans renewal/roll overs
-> Less demanding/strict
FI is very important to SMEs
SME requires many unsecured loans for working capital needs BUT they only have a few assets to pledge as collaterals for loans. SO they can only turn to FIs
Activities of FI
Deposit:
Savings and fixed deposit
Loans:
Real estate loans (housing)
Consumers Loans (car, share finance)
Business (CF, Trade finance, Factoring, Leasing)
They focus on providing Fixed Deposits & Saving Deposits & Credit facilities to indivs and SME.
How does FI finance?
Leasing
How does leasing work?
The lessor (FI) will purchase the equipment at the request of the lessee (Borrower)
Lessee will use the equipment and make periodic payments to the lessor for a period of time.
*The equipment’s ownership will belong to the lessor during the lease period.
What is share financing
Borrowers will pledge a certain number of acceptable listed shares with FI as collaterals in exchange for a loan.
The FI will then allow borrowers to borrow a certain percentage of the market value of the pledged collaterals
What is factoring
Clients will sell their debts/Accounts recievable to finance company
FI will then pay the client a certain percentage of the debt.
On the due date of the accounts recievable, FIs will then collect directly from client’s customers.
1 Restrictions for FI
- MAS does not allowed unsecured loans that exceeds 500 million.
-> limit on uncollateralised business loans to a single borrow: 0.5% of capital funds
-> Aggregate uncollateralised business loans: 25% of its capital fund.
Another restriction for FI
Cannot deal w foreign currency, gold or other precious metals. Cannot acquire foreign currency denominated shares or debt securities
Crowdfunding
Raise money for a cause, project, venture or organization from a large group of individuals
In exchange for the funding, individuals that contributed to the funding are repaid with gifts, products, interest payments or equity
Peer to peer lending
interactions between individuals instead of a central authority
EG sharing apps like uber, AirBNB that allows individuals to share rides home with other people.
This provides income for the owners of car and convenient services for people.
This service circumvent the hassles of dealing with traditional services providers.
So what exactly is p2p and crowdfunding lending
They are platforms that raises funds for business in exchange for interest payments or equity shares.
They take place through online platforms and acts as substitues for traditional banks.
Why is p2p/crowdfunding lending a great alternative to traditional financing?
They are able to raise thousands or even millions of dollars. This type of funding increases the accessibility of financing for SMEs, which might not even meet the bank’s requirement.
It also offers individualised financing terms catered to borrower’s needs which alows flexible loan repayment schedules and interest rate structures.
Disadvantages of P2P/Crowdfunding
SME may still prefer to take loans still frm banks and Financial companies as SME are nervous abt taking loans from less experienced lender.
-> Banks typically chrage lower interest rates as well.
-> Both banks and p2p crowdfunding require business info to access borrower’s risk but due to the public nature of p2p/crowdfunding, this information will become public to investors.
Insurance companies
A financial tool used to manage risk of financial losses arising from accidents or ocurence of unforseen events
What is the 2 different risk
Pure risk - 2 possible outcomes
(loss or no loss with no possibility of gain or profit)
Speculative risk - 3 possible outcomes
(loss, no loss and profit)
NOT INSURABLE
Insurance protects against which risk only
PURE RISK
Basic insurance principles
Law of large number
Average of results obtained from a number of trials should be close to the expected value.
