Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Don't let the city's 1 percent interbank interest rates fool you. Money is tight in Singapore.

Lenders are lifting credit standards for riskier borrowers. It doesn't help that the island's real-estate market is in the doldrums, and business owners who could have raised new equity in more normal times by refinancing investment properties have little wiggle room to do so now, due to the central bank's highly restrictive 2013 limits on total debt servicing.

Creditworthiness Slip
More ratings actions in Singapore are downgrades rather than upgrades
Source: Bloomberg
* Total of S&P, Moody's and Fitch.

And yet, the lights have to be kept on and the taxman paid. So Singapore's subaltern finance industry came up with what looks like an efficient solution for working-capital financing: crowdsourced promissory notes.

As long as the notes raise S$100,000 ($74,000) or more and expire within a year, they aren't technically securities that need to be sold with a prospectus. Earlier this year, Epicentre Holdings, an Apple reseller, made news by becoming the first publicly traded Singapore company to get money via crowdfunding, raising S$1.5 million for a year at 13.5 percent.

Accommodative Policy
As bank credit slows, Singapore is making crowdfunding easier for startups and small businesses
Source: MAS, Bloomberg
* Loans by domestic business units of banks to non-bank customers in Singapore.

But before excitement turns into frenzy and dubious practices spring up, Singapore has decided to put an end to crowdsourcing of promissory notes, and have proper securities sold via regulated platforms  instead.

Restricting crowdfinancing to a high-stakes parlor game among consenting adults makes sense. It should help reduce the cost of finance for small businesses, and sate the desire for yield of moderately wealthy Singaporeans who didn't get into Facebook before its IPO. The former have more assets than cash; the latter have spare cash, but want assets.    

So why not let them transact?

For middlemen who promise to channel money only from accredited and institutional investors, the Monetary Authority of Singapore has decided to drop the base-capital requirement by 80 percent to just S$50,000, and scrap the security deposit of S$100,000.

As for platforms that want to broaden the field, they don't have to worry about both a retail investors' expertise and suitability. If a customer is prepared to lose all his capital and ready to hold on to an investment for 10 years, he's fair game, even without a high-school diploma.

Companies can even now raise up to S$5 million in any 12-month period without having to issue a prospectus. Crowdfinancing can tap that limit, provided the securities offer isn't made to the CEO's gym trainer -- unless, of course, she's looking to get in on such deals.

It's hard to say whether the new regulatory regime will be a crowd puller. Debentures may see more action.

Equity crowdfinancing will probably remain hostage to the so-called adverse selection problem until tech mania has subsided. So long as venture capital keeps throwing money at long shots, it's only the rejects that will show up to get crowdfunded. Besides, even the Singapore stock exchange hasn't had much luck in stoking excitement. Initial public offers in the city over the past seven years have given investors weighted average returns of minus 17 percent, versus positive 49 percent in Hong Kong.

So will the masses find and fund Singapore's next sleeper success? Don't hold your breath. But for sleepless company bosses, crowdfunding might be a good way to make payroll.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. About 15 percent of loans to small and mid-sized companies in Singapore were mortgage equity withdrawal advances against residential property as collateral, the government disclosed in reply to a question in parliament in November 2013.

  2. Currently, Singapore has only two licensed crowdfinancing platforms. 

To contact the author of this story:
Andy Mukherjee in Singapore at

To contact the editor responsible for this story:
Katrina Nicholas at