Mr Kuo How Nam suggested that greater access to licensed moneylenders for maids will lead to less borrowing from unlicensed moneylenders (Moneylenders must cover costs, risks; Nov 30).

The 2015 amendment to the Moneylenders Act has resulted in interest charges tripling, and a sudden spike in the supply of credit to maids.

In just the first half of this year alone, 28,000 maids borrowed from a licensed moneylender. Yet despite this supply increase, police have indicated that maids borrowing from illegal moneylenders is a growing trend.

Maids are especially vulnerable to coercion, and many are also financially illiterate.

For example, the threat of disclosing a debt to their employer will drive many maids to repay their loan, even if it requires them to borrow from a loan shark, for fear of having their employment contract terminated by their bosses.

I believe moneylenders exploit such fears by mailing reminder letters, clearly labelled as an overdue debt, knowing that the maid - the borrower - and their employer share the same address.

My suggestion is to prohibit moneylenders from such high pressure collection tactics that would drive maids to borrow from unlicensed moneylenders.

My other suggestion, to tackle financial illiteracy, is to mandate the prominent disclosure of the annualised effective interest rate in all moneylending documents, including contracts and debt reminders.

Effective interest rate takes into account all costs, including upfront borrowing cost, and the effect of compounding.

Compounding is not intuitive, and many maids may not know that a seemingly low "4 per cent per month" translates into an exorbitant "60 per cent per year" interest rate.

And this is before accounting for the effect of upfront borrowing charge which is now allowed after the 2015 amendment.

Maids contribute much to our economic development. We owe it to them, and their families they leave behind, to enact thoughtful legal safeguards while allowing them access to credit.

Cheong Foong Soon (Dr)