Microfinance is a term used in the Third World for small loans to impoverished people who seem capable of improving their circumstances and need a little capital to get started. The Nga Tangata Microfinance Trust in South Auckland seems to be providing a less businesslike but no less welcome solution for some of the indebted poor in this country.
Set up two years ago by eight church charities and budget services, the trust has previously escaped the attention not only of news media but of an expert advisory group on child poverty appointed this year by the Children's Commissioner. In their report last week the experts proposed a "public/private partnership microfinancing model" as one of the immediate steps the Government could take at little cost to the taxpayer.
The Nga Tangata scheme did not need a Government decision to get started, did not depend on taxpayer support and has not beaten a political drum. Quietly it was formed with capital from Kiwibank and a property development and it has proceeded to lend sums of up to $2000 for urgently needed household items that might otherwise send the needy to a "loan shark".
The fact that the trust is still providing loans after two years suggests its clients have a good record of repayment. Those granted loans must have been with a budgeting agency for at least two months and have a household income low enough to qualify for a community services card but sufficient to repay the loan within two years.
The sort of needs that qualify for a loan are car repairs, a computer, a fence to protect a disabled child. In one case we highlighted yesterday the trust lent a family with five children $685 to replace their 14-inch television with a bigger one.
The loan was repaid at $25 a week.
Crucially, the family had been accepting advice from the Otara Budgeting Service for two years. By renegotiating hire purchase agreements, extending repayment periods and using all available state entitlements, the adviser was able to straighten out the family's finances and let it afford a bigger TV.
But when the mother of the family later asked for a loan to buy a laptop and camera for a photography course, she was turned down. She might have had more luck in a Third World country where "microfinance" favours items that might enable a borrower to earn a living.
The South Auckland scheme was inspired by an Australian scheme started by a religious order, the Sisters of the Good Shepherd, more than 30 years ago. "Microfinance", declares Good Shepherd Microfinance, "is not for money-making activities. Our programmes help households with essential living costs, like fridges, education or medical expenses."
A Good Shepherd New Zealand Trust, established with $5 million from the subdivision of a property formerly owned by the order in Christchurch, may be able to support more schemes like the one in South Auckland. Banks and the Government ought to get behind the idea as they have in Australia.
It is the sort of social assistance that gives both clients and the taxpayer more confidence than state agencies can provide. Clients know they are borrowing from a charity that has to be repaid, taxpayers know the charity will take care to see that its beneficiaries use the money for its intended purpose and are capable of meeting repayments.
If success enables microfinance to be provided for purposes beyond household emergencies and offer capital for a marketable skill, so much the better.
But the Nga Tangata trust is a start.