"This will accord finance companies greater flexibility to explore strategic partnerships and innovative business models," the Monetary Authority of Singapore (MAS) said in a statement, doing away with regulations barring such takeovers.

The new rule is effective immediately.

The central bank said it is now prepared to consider an application for a merger or acquisition if the prospective merger partner or acquirer commits to maintaining financing to small and medium-sized enterprises (SMEs) as a core business of the finance company.

The merger partner or acquirer must also be able to demonstrate expertise in SME financing and present proposals to enhance the finance company's SME lending activities with new technologies, methodologies or business models, the MAS said.

Singapore has three financing companies - Hong Leong Finance Ltd, Sing Investments & Finance Ltd and Singapura Finance Ltd.

Shares in Hong Leong Finance were up 5.7 percent on Tuesday, while Sing Investments & Finance Ltd's share rose 2.4 percent and Singapura Finance Ltd shares gained 9.3 percent.

The MAS said it would also ease restrictions on unsecured business loans by finance companies to bolster their ability to provide unsecured loans to SMEs, as part of other regulatory changes to be phased in this year.

This includes raising the limit on a finance company's aggregate uncollateralised business loans to up to 25 percent of its capital funds, from the current 10 percent.

As of the second quarter of 2016, the three financing companies combined accounted for just under S$7 billion of outstanding loans to SMEs, or about 8.5 percent of the total amount of outstanding loans to SMEs in Singapore.