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New Otago zero and low interest community loan schemes are aimed at stamping out predatory lending in the region.
Good Shepherd New Zealand announced the finance programme in Dunedin today.
Presbyterian Support Otago will help people access the loans, which are provided by BNZ.
It is supported by the Ministry of Social Development.
The programme offers the No Interest Loan Scheme (Nils) for between $300 and $1000, which has a maximum 12 month term.
The StepUP scheme for between $1000 and $5000 has a fixed interest rate of 6.99% per annum, for between 3 months and three years.
Both schemes require eligibility for a Community Services Card and have the "willingness and capacity to repay".
For the StepUp loan the bank's usual lending criteria and terms apply.
The money must be used for essential household goods and repairs such as furniture, appliances, computers and car repairs.
In a statement Good Shepherd said access to low cost and affordable credit was an ongoing issue for many families throughout the region, often prompting them to turn to loan sharks to purchase essential items.
New figures from Presbyterian Support Otago reveal increased living costs, loss of income and problem debt were among the top reasons people accessed its services between January and June 2019.
In Dunedin its clients had a combined debt of $4.2 million, with an average debt per person of $25,123, excluding mortgages.
One of the first people to access the Otago programme is single mother Sarah*, of Dunedin.
Her daughter uses a wheelchair, and Sarah is unable to work as she is her sole caregiver.
A StepUP low-interest loan would help her purchase a car to attend frequent medical appointments, rather than relying on family members for transport.
"The loan means freedom for us. My low income means it’s almost impossible for me to qualify for lending by any of the banks, and there weren’t many other options out there until now.”
Good Shepherd New Zealand chief executive Fleur Howard said the community finance programme was designed to help prevent financial hardship and "insurmountable" debt.
"A lot of families find it hard just to meet basic food, housing, power, transport and healthcare needs.
“When an unexpected cost comes along, they can really struggle. To cover such costs as a car to get to work, or a new washing machine when the old one breaks down, their only available option is often at the loan shark end of the finance market, because they don’t meet mainstream lenders’ credit criteria. As a result, they can become burdened with unmanageable debt.
The programme was not designed to be a quick fix, she said.
"We provide more than just loans. As part of the application process every client has a conversation with a loan worker to ensure they understand their financial situation and can afford to make the repayments, and where needed, access other forms of support. This is an important step towards building long-term financial capability."
Presbyterian Support Otago practice development manager Melanie McNatty said she knew from its work there was a lack of low and no interest loan options for clients, which was causing "real hardship".
"We are really excited to be able to work with Good Shepherd NZ and BNZ to meet this need.”
BNZ head of community finance Frances Ronowicz said it was "on a mission" to disrupt predatory lending.
* Name changed for anonymity