Anti-loan shark scheme funded by BNZ hits Invercargill
A low- and no-interest loans scheme trialled in Auckland is being rolled out to Invercargill.
The Community Finance Partnership, which is funded by BNZ, is designed to make small loans to low income families to help them improve their lives.
It's also hoped the no-interest loans (NILs) and low-interest loans (StepUp loans) will keep more people out of the hands of loan sharks and expensive third tier lenders.
Jubilee Budget Advisory Service manager Sharon Soper said while the loans may be ok in some circumstances she would never recommend anyone take out a loan without seeking financial advice.
In the situation where a person got a job and they needed a car to get to work it may be suitable, taking on board prudent financial advice, to take out a loan to purchase the car, Soper said.
In a situation where someone thought they needed to take out a loan, they should get a budget done and seek financial advice, she said.
The Community Finance Partnership is run by the Good Shepherd New Zealand charity and BNZ, with support from the Ministry of Social Development. The loans are made through the Salvation Army.
A pilot was launched in Auckland in 2014 aimed at helping the 'financially vulnerable', people who don't fit standard bank criteria and have exhausted their Work and Income options.
The most common use for the $1000-$5000 StepUp loans, on which interest is charged at 6.99 per cent, is to buy a car, but there are financial literacy gains for borrowers.
"By connecting with community loan workers, people learn life skills like managing their budget better and become more savvy in their understanding of the dangers of third tier lenders," said Fleur Howard, chief executive of Good Shepherd
So far 280 loans have been made totalling $700,000. They are estimated to have saved borrowers around $380,000 in interest when compared to borrowing from third tier lenders.
The loans are funded by BNZ, which has committed $60million to the scheme on a not-for-profit basis.
BNZ chief executive Anthony Healy said: "Community Finance addresses a very real need and BNZ is proud to be part of that. But what is most exciting is seeing what comes next for a client; what the loan enables. I heard about a young man who came to us and said that the only thing stopping him from getting a job was having a car.
"We were able to arrange a StepUP loan with Community Finance, which meant he could buy a secondhand car. We were delighted when he told us he had secured an apprenticeship the next day."