A ‘shadow bank’ hiding in Singapore’s Little India casts light on financial services gap: Opinion

In a rented room above Norris Road in Singapore’s Little India district, a man named Raju Krishnamoorthi quietly processed more than S$28 million in just three months, from February to April 2025.

But Raju was neither a high-flying banker nor a financial technology entrepreneur with a slick digital app. What he had was a simple business model: migrant workers wanted to send cash back to the sub-continent, and Raju would help them do this.

Working for a man known as Syed, Raju earned a modest S$1,500 a month to act as the human face of a money remittance syndicate.

The only problem? The business was not licensed.

Yet, workers trusted him so completely that some even handed over their physical ATM cards and PINs for safekeeping. When they wanted to send money home, they simply told Raju to go to the machine, withdraw the funds and process the transfer.

When it was time for Raju to hand the consolidated physical cash over to a third-party courier, Syed would send Raju a photo of a specific S$2 note.

The courier had to show up in Little India and present that exact physical note. Raju would check the serial numbers; if they matched, the cash was handed over. No app crashes, no server downtime, no forgotten passwords.

​The scale of this analogue shadow bank was staggering. During peak payday periods, Raju would handle around S$1 million in a single day.

​The authorities raided the shophouse and shut the operation down – and rightly so.

On Jul 15, Raju was sentenced to jail after pleading guilty to one charge of conspiring with another person to operate a cross-border money transfer business, and one charge of abetting someone to make a false statement for a work pass application. He was also fined S$60,000.

Protecting Singapore’s financial integrity requires firm enforcement. However, an interesting question is why a single operator could drum up S$28 million of business in such a short window.

​Indeed, illegal financial services do not emerge in a vacuum; rather, they are raw market signals.

Like any shadow economy, an underground payment network exists because it solves a problem the formal system fails to address. Every illegal transaction is evidence of unmet, underlying demand.

Cheaper, faster, easier

​Why would a worker choose an informal network over a regulated bank?

​First, there is the “last-mile” cash problem. Digital apps manage the cross-border leap effortlessly, but the failure happens after the money arrives.

Take a worker sending funds to a rural village in South-east Asia or the Indian sub-continent. For the recipient, whose nearest official bank branch is a two-hour bus ride away, the formal system is much too cumbersome.

Informal networks often solve this by employing local agents who deliver physical cash directly to the recipient’s door.

​Then, there is the compliance wall. Setting up a digital wallet in Singapore requires a flawless paper trail: valid passports, proof of residential address and official work passes. For transient workers navigating foreign bureaucracies, this is a severe hurdle.

The operator in the shophouse, however, asks for zero paperwork.

​We should also consider the anxiety over a possible typo. Banking apps are often unforgiving: typing a single wrong digit when remitting an entire month’s wages means the money might bounce back weeks later, minus a hefty administrative penalty.

By handing physical cash to a human operator, the worker outsources that anxiety. The operator absorbs the risk of the transfer failing.

​Finally, there is the foreign exchange spread. Regulated banks must use official clearing houses and bake compliance costs into their fees.

Shadow networks often bypass cross-border wire systems entirely through ledger matching. The cash collected in Singapore stays here to settle local obligations, while an affiliate in the destination country pays the recipient using local funds.

By avoiding the official grid, the syndicate offers exchange rates that are often able to beat the banks’.

More importantly, the informal network thrives on community trust. The operator speaks the familiar language and understands the cultural nuances of the transaction.

To be sure, the workers handing over their hard-earned cash are not deliberately rejecting mainstream banks.

But, essentially, it boils down to basic consumer economics. The informal route often provides lower costs, faster settlement and an enticing lack of paperwork.

No KYC, no problem?

​Singapore boasts some of the most sophisticated banks in the world. DBS, OCBC and UOB provide seamless international transfers for millions.

But formal institutions optimise for compliance, standardisation, risk management and scale. Meanwhile, an informal operator optimises for flexibility, speed, personal trust and solving individual exceptions.

​Banks cannot ignore their anti-money laundering and “know-your-customer” (KYC) obligations. The informal operator competes precisely because he operates entirely outside those constraints.

He can use the serial number on a physical S$2 note as his authentication tool – a simple hack that bypasses the need for one-time passwords and digital tokens.

​This naturally, then, raises the fintech question.

Disruptors such as Wise and Revolut have already slashed costs and improved the speed of cross-border transfers. If technology was the sole barrier, the fintech sector would have wiped out these analogue syndicates years ago.

Yet, the Little India network thrived. This suggests the hurdle is not technological.

The sticking point involves difficult payment corridors and recipients who lack bank accounts back home. It also points to customers who remain excluded from mainstream finance, perhaps due to language barriers or digital illiteracy.

For many in this demographic, trust remains strictly analogue rather than digital. A familiar face in a neighbourhood shophouse beats a chatbot every time.

​Singapore positions itself as a premier global fintech hub, hosting massive festivals to celebrate digital innovation.

Yet, the stubborn survival of informal finance in the very same city illustrates a sobering reality: financial inclusion requires much more than mere digitalisation.

Regulation is absolutely necessary because it creates systemic trust, yet it also generates friction.

The ongoing challenge for regulators and financial institutions is figuring out how to reduce unnecessary friction without compromising the robust safeguards that make Singapore a trusted financial centre.

​To be clear, this observation is no argument against strict enforcement.

Remittance regulations exist for very good reasons. They combat money laundering, terrorist financing, sanctions evasion and fraud.

The authorities cannot simply relax the rules to accommodate micro-transactions. Enforcement is essential.

​But arresting one operator removes a single node from the network. Many more nodes probably remain, still operating in the dark until the authorities knock on the door.

More importantly, enforcement does nothing to remove the very real need that operator was meeting.

The true challenge for our banks, fintech firms and regulators is to figure out why people still actively seek underground alternatives in one of the world’s most advanced financial centres.

Until the formal market provides a better answer, the shadow system will always find a way to operate.

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

The demo is over. Making AI work in production begins now – Opinion Accountant who failed to place $8.5m in fixed deposit ordered to pay damages to ex-employer