NZ microcredit scheme likely

17:00, Aug 10 2013
Microcredit
GOOD MONEY: In Australia, a partnership with government has seen third-tier lenders break the loan shark monopoly.

New Zealand looks likely to get a microcredit scheme designed to break the stranglehold third-tier lenders have on some of the country's poorest people.

Just what it may look like could be revealed as early as next month.

Retirement commissioner Diane Maxwell, who researched financial exclusion while at the Bank of New Zealand, has been evaluating the success of microcredit schemes in Australia, including Good Shepherd's low and no interest loan schemes.

Maxwell was prohibited from talking in detail about her findings before reporting back to Government, but she said: "We are looking at how we would address the issue of financial exclusion, and timely assistance to people who don't have access to mainstream lending."

The aim was to find an effective, scalable way of reducing the impact of third-tier lenders such as payday lenders, she said, giving the poor a better chance of saving before they get to the retirement age.

"It is critical from a retirement perspective," she said.

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Sources suggest an announcement could come from Government, which appears committed to some form of action, as early as September.

But while the Good Shepherd scheme has scaled up in Australia, it is premature to assume it will be the provider of choice here, or that a New Zealand scheme will simply adopt the Australian model of microcredit.

There are differences between New Zealand and Australia, said Good Shepherd's Fleur Howard.

This includes the availability here of loans for things like whiteware that are available through Work and Income.

In Australia, a partnership between the charity Good Shepherd, government and the National Bank of Australia, has seen "Good Money" shops spring up in deprived areas, and have made over 60,000 no interest loans designed to help break the grip of loan sharks in poorer Australians' lives.

The Good Shepherd model does have features that would be attractive, with non-Governmental organisations delivering programmes that in the past would have been delivered by the likes of Work and Income.

That's a model that has been praised by Housing minister Nick Smith in relation to public housing, for example.

Good Shepherd is already at work in New Zealand on a small scale, after having set up a pilot scheme in Christchurch last year, but its operations in Australia are anything but small. There, more than 21,000 no interest loans were written in the 12 months to the end of June last year, and just over 1600 low interest loans were made.

The loans, which have fairly strict lending criteria including limitations on what they can be used for, are unsecured. Despite that, there is only a 1 per cent write-off rate, Good Shepherd said, indicating borrowers (70 per cent women, 21 per cent Aboriginal Australians) are not abusing the system.

Despite that the scheme comes at a cost. Losses have to be borne by the funders, in the case of the Australian scheme the Australian Government, NAB and Good Shepherd.

As a report into Good Shepherd's "StepUp" loans from earlier this year showed, the programme costs, including the cost of administration, loan write-offs and foregone interest, add up to A$1059 per loan.

That is a cost which Australia seems willing to shoulder, having much better research into financial exclusion than New Zealand. New Zealand does not have good data on the financially excluded, a term taken in Australia to include those who have no access to reasonably-priced credit. In Australia research indicates 17 per cent of adults fall into the category.

Sunday Star Times