Loan scheme aims to knock out 'loan sharks'

Almost one million families will be eligible for low- and no-interest loans under a new government-backed scheme aimed at saving low-income families from "loan sharks".

The Community Finance scheme, launched by Social Development Minister Paula Bennett in Manukau today, starts with $10 million in initial finance from the Bank of New Zealand and a small government subsidy for administrative costs.

The "front door" to the scheme will be the Salvation Army, initially on a pilot basis in its Manukau and Henderson offices where many clients have been paying interest to "loan sharks" of up to 10 per cent a week – 520 per cent a year.

The new scheme offers two kinds of fee-free loans:

* A no-interest loan scheme ('NILS') of up to $1000 for up to 18 months from early September.

* 'StepUp' loans of between $1000 and $5000 for up to three years at 6.99 per cent interest from today.

Both loans are only for "essentials" including buying and repairing second-hand cars, new household appliances and computers, and health and educational costs such as dentists or course fees. They are not available for other uses such as paying for bills, fines, funerals or travel.

Both are available to people who qualify for a community services card, have used up any entitlements they have for loans from Work and Income and can't borrow from mainstream banks, but can provide bank statements or other proof that they can repay the loans.

They also have to provide proof of identity, proof of address and documents showing all their existing payments on regular bills and debts.

In principle, most of the 913,450 families with community service cards on June 30 would be eligible. The cards are available to single people earning below $25,494 if sharing a home or $27,150 living alone, to couples earning up to $40,590, and to families receiving family tax credits and earning up to between $48,549 for a two-person family and $74,919 for a five-person family.

But in practice the scheme will start small. Salvation Army community ministries head Major Pam Waugh said the army was appointing only one loan officer in Manukau and one in Henderson with each expected to write up to 10 loans a week, implying a total of up to about 1000 loans a year.

Bank of New Zealand (BNZ) head of community finance Frances Ronowicz, who was recruited for the new role from her former job as operations manager for Instant Finance, said she would be happy if she could write five StepUp loans a week in the first few months.

"The pilot is to look at how the distribution might work, making sure the model is right," she said.

Both the NILS and StepUp loans have been copied from similar schemes run in Australia for the past decade by BNZ's parent company National Australia Bank and Good Shepherd Microfinance, founded in 1981 by Catholic nuns of the Good Shepherd.

The Australian scheme has made 135,000 NILS loans and 11,300 StepUp loans totalling more than A$100 million ($110 million) to date, with a A$6 million ($6.6 million) a year federal government administrative subsidy for three years up to June this year.

In New Zealand, a state subsidy believed to be about $250,000 a year for three years will be split between the Salvation Army and Good Shepherd Trust. The trust has provided all its intellectual property for the local scheme, will train Salvation Army and BNZ staff, and has appointed an Auckland-based project manager, Matt Halsey.

Mr Halsey, 42, is a trained lawyer who has worked for the United Nations Development Programme in Laos and reviewed micro-credit programmes in Bangladesh for the Leprosy Mission. He is now the mission's Auckland-based programmes manager.

"I have worked for a long time in international development but I wanted to change my focus to be working in New Zealand," he said.

"I have been looking for a job, saw this, and it was my dream job - it sounds corny but it quite literally has been."

Ms Ronowicz, who spent 10 years with Instant Finance, said she loved her time there and believed the firm behaved ethically. But she took the BNZ job when asked because "it's the right thing to do".

She said Salvation Army loans officers would interview loan applicants for about an hour and a half to help them work out a budget so they could repay a loan, even if they had a bad credit history with past loans.

Major Waugh said the army would help borrowers with ongoing budgeting, financial education and support.

"It's being proactive about not letting them get into trouble. We can help with food if they do have an extra big bill one week," she said. "Our purpose is to create a system where people can establish a good credit record."

-By Simon Collins of the New Zealand Herald

Get rid of the loan sharks

I agree, this is an excellent initiative which will be a God-send to many.  Anything that can
keep the indigent out of the clutches of loan sharks has got to be a great step forward.  I think a lot of us cringe when we see those ex-sports stars fronting for loan sharks.

Good luck with fine tuning the scheme.  Maybe criteria needs to be built in to allowrepayment schedules to be changed to meet changing circumstances of the client.  I have made a few interest free private loans over the years and often find that it is necessary to allow a
repayment holiday - it helps keeps self esteem intact and is much better than the alternative of calling the loan defaulted.

Finally, I am a baby boomer and therefore a selfish individual according to that Methodist Mission person in you paper earlier in the week. Hope she dosen't ask me for a donation.

 

Dont belive the TV

Do the words 'don't live beyond your means' mean anything these days? Instead of the Government becoming moneylenders themselves they need to be limiting the amounts of interest these sharks can charge, and I do mean the banks as well. This country needs a financial dipping to get rid of all the parasites.

Small loans

This is a splendid initiative!  Usury is the cause of too much misery. Something goes wrong, an unexpected expense that a tight-stretched budget cannot cope with and Snap! goes the trap.  Now that person is trapped into a loan - that they could repay by tightening their belt yet another notch - but the interest payments are so high they are guaranteed "clients" for the foreseeable future.  Like a tapeworm the loan company feeds off its victims, gets more to consume because there is never a chance to pay off the loan and save a little for emergencies.  Then another urgent need comes along, and more money borrowed.  Great - for the lender!  Even higher interest payments coming in!  

Some of those "irresponsible" parents who send their children to school without breakfast, without lunch, an empty house to come home to after school, those parents are working every possible hour not so they can drink and take drugs, but so they can keep at least a roof over the family's heads.  They want to keep their few possessions because if they default on the loan there is no mercy,  not from those lenders who extort exorbitant interest from desperate people.  Miss a payment and there's a huge penalty added to the debt.  Fail to pay that because there is literally not enough money coming in and some large men come to the door then the fridge and TV and skateboard are seized, no matter if the goods are old and not worth much to resell.  

It can take such a small loan, in the general scheme of things, to help a person out of  difficulty, or throw a person, a family, into a hole that  grows deeper and more impossible to climb out of even though they try and try, work and work.  Bear in mind that many of the jobs that pay the minimum hourly rate are part time, sometimes a person works 2 or more jobs to try to make enough to survive but this  catches them with secondary tax, or jobs like accommodation cleaning where the hours depend on how many people stayed the night before.

Small loans at an affordable interest rates, lent with as much caution as a bank loan, have the potential to reduce one of the most iniquitous poverty traps. 

 

 

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