Catriona MacLennan: Loan plan start of something good

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A recommendation by an anti-poverty group could have a positive impact on poorer borrowers.

Two of the key sources of poverty in New Zealand are low wages or benefits, and lack of access to affordable loans. Photo / NZ Herald
Two of the key sources of poverty in New Zealand are low wages or benefits, and lack of access to affordable loans. Photo / NZ Herald

The Government will be making a serious mistake and missing a major opportunity if it disregards one of the key recommendations of the Expert Advisory Group on Solutions to Child Poverty.

The group's final report, released on December 11, made 78 recommendations for reducing child poverty.

Recommendation 48 was that the Government investigate and implement a public-private partnership microfinancing model involving the banking sector and community groups, with the aim of providing modest low interest and zero interest loans to help low-income families access affordable credit and effectively manage debt.

Two of the key sources of poverty in New Zealand are low wages or benefits, and lack of access to affordable loans. The poorest Kiwis are unattractive customers for banks and top tier lenders, meaning that they are driven into the arms of loan sharks and others who charge excessive interest rates and high loan fees.

Almost all of the clients for whom I have acted over the past 16 years have been unable to obtain credit from banks. They do not own homes, they have poor credit histories and they are either beneficiaries or on very low wages. Banks do not choose to lend to such New Zealanders. When they end up in desperate situations, therefore, their options for obtaining credit are very limited.

The Government could speedily address this problem and almost shut loan sharks out of the country overnight if it implemented recommendation 48 and helped establish microfinance schemes throughout the country.

New Zealand is, in fact, well behind other nations in its slow realisation both of the potential of - and the need for - such programmes.

In Australia, the Good Shepherd Sisters in 1981 began lending small amounts of money to people to buy essential household items such as fridges, washing machines and furniture. No interest is charged on the loans and they are repaid over 12 to 24 months. The percentage of loans repaid is approximately 97 per cent - this is essential to the successful functioning of the scheme. If loans are not repaid, the money is speedily dissipated and the programme will collapse.

There are now more than 400 of these schemes around Australia. They are all developed at community level and administered in local areas, responding to the specific needs of people in those areas.

In North Carolina, Self-Help was set up in 1980 and is now the largest non-profit lender in the United States. It has offices in North Carolina, Washington DC and California and manages more than $1.2 billion.

New Zealand is crying out for similar programmes and it is disappointing that no government has recognised their value and moved to initiate and support them.

Nga Tangata Microfinance Trust was established in New Zealand in 2010 and has begun making no-interest loans to people for household items through a pilot scheme in South Auckland. It is based on the Good Shepherd model and does not charge interest or fees on the loans.

There are also microfinance schemes in a number of other locations around New Zealand, located in their communities and operating on a very small scale.

One South Island scheme lends money to women seeking to obtain employment. That programme has partnered with a car dealer who finds affordable cars, has them checked over by mechanics and then sells them at reasonable prices to the women so they have transport to get to work.

However, what is needed now is a major step-up in the process of developing and rolling out microfinance schemes. That should be done by the Government stepping in to provide assistance.

Funding could be provided through Kiwibank and other banks could also come to the party - as National Australia Bank has done for many years across the Tasman.

The schemes are not expensive to run as the initial money is simply recycled endlessly, being lent out again to other needy borrowers as soon as it is repaid.

Banks or the Government could donate funding or in-kind contributions to fund the administrative costs of the schemes - for example, by making a room available in a community house so the programmes have premises.

These are such small steps for banks and the Government to take but they would bring about a revolution in affordable credit and in helping to address poverty in New Zealand.

The biggest source of family poverty for my clients - apart from low family incomes - is the huge interest rates and loans they are forced to pay when they buy cars. The vehicles they purchase are often of poor quality and speedily break down but the borrowers must still repay the full amount of the loan and the huge fees which often accompany it.

There have been numerous reports in New Zealand in recent years which have highlighted the plight of low-income people who cannot obtain affordable credit and who are therefore placed at the mercy of unscrupulous lenders.

Now is the ideal time for the Government, the banks and the community to come together to address this problem.

Good Shepherd does regular reports on its loans, highlighting the immensely positive impact they have. Those benefits go well beyond the purchase of the household item for which the loan is provided. Once borrowers have repaid the money, they receive a letter from Good Shepherd confirming their reliability as borrowers.

This is the start of creating a positive credit history for the borrowers, meaning that eventually they should be able to obtain credit from banks.

There are also intangible benefits from the schemes. People who are marginalised by society and repeatedly knocked back when they seek to obtain assistance speak of the immense boost to their self-esteem from Good Shepherd agreeing to provide funding to them.

For many, this is the first time in their lives that anyone has recognised anything positive in them and been prepared to take a chance on them.

Let's give New Zealanders the same opportunity.

Catriona MacLennan is a barrister and journalist and was the project director for Nga Tangata Microfinance Trust.

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