Scheme aims to keep poor from loan sharks

23:46, Aug 13 2014
loan shark
STEP-UP LOANS: The scheme aims to provide affordable finance to people who might otherwise risk falling into the clutches of loan sharks.

A pilot scheme providing low and no-interest loans in two of Auckland's poorer suburbs was launched by Social Development Minister Paula Bennett today.

Backed by $10 million of capital provided by Bank of New Zealand, the Community Finance scheme aims to provide affordable finance to people who are unable to access mainstream financial services and would otherwise risk falling into the clutches of loan sharks.

If the pilot proves successful it will be rolled out in other cities, including Wellington and Christchurch.

From today the pilot will make available Step Up loans of between $1000 and $5000 to those on low incomes.

Borrowers must show they can repay the loans, but get a low interest rate of 6.99 per cent, with repayments over periods of up to three years.

The no-interest loans (NILs) can be up to $1000, and must be repaid within a year and a half.


NILs will be available from early September.

Depending on the type of loan, they can be used to buy essential household goods and services, such as new whiteware, or to pay medical expenses or higher-cost assets, such as motor vehicles, that will provide economic opportunities and improve people's quality of life.

The loans are not to pay fines, bills or pay for non-essential things like holidays, or replace existing assistance available from Work and Income.

The initiative will start with a one-year pilot in the Auckland suburbs of Manukau and Henderson.

Borrowers could apply through The Salvation Army, whose staff have been trained by the Good Shepherd charity, headed by former retirement commissioner Diana Crossan.

Through the life of each loan both The Salvation Army and BNZ will monitor repayments and provide borrowers with support.

The Ministry of Social Development will contribute to some of The Salvation Army's costs.

The scheme is modelled on one in Australia that has been running for about 10 years. That scheme is funded by BNZ's parent company, National Australia Bank.

And like it, the New Zealand scheme has the aim of helping people who sit on the margins of the banking system.

These are people who would normally not fit banks' high lending criteria, and who are often forced to borrow at much higher cost.

BNZ director of strategy and business performance Michelle van Gaalen said it was important that all parts of society were "financially included" and had access to mainstream credit, including those previously deemed too risky to lend to.

"Invariably people want to pay back what they owe and become self-sufficient," van Gaalen said. "BNZ wants to help empower them to do that."

Major Pam Waugh, head of The Salvation Army Community Ministries, said: "It can be expensive to be poor, especially when you don't have access to suitable finance and have to rely on alternative services such as payday lenders and mobile loan sharks.

"By providing credit at affordable rates to this sector of the community, we can focus attention on improving economic opportunity in these areas."

This is not the first scheme to provide low and no-interest loans.

The Nga Tangata Microfinance Trust, funded by Kiwibank, has been lending to low-income families in Auckland since 2011, which spokeswoman Claire Dale called New Zealand's "fringe-lending" capital.

While applauding the pilot launch, Dale rued the Government's refusal to cap the interest rates charged by loan sharks and payday lenders.

"Because we do not have a cap on interest rates, the poorest families, desperate to fix their car or fridge, are often forced to borrow small sums at rates of 10 per cent weekly. That is an annual rate of 520 per cent, and it is legal," she said.

"This is the real source of the poverty trap. It keeps food off the tables of poor families. It works against social justice."