A group of Auckland charities have quietly started lending money at zero interest rates to low-income families in a pilot project which may eventually drive loan sharks out of the market.
Nga Tangata Microfinance Trust has made nine loans so far using eight South Auckland budgeting agencies as their "shopfronts", and with loan capital from Kiwibank.
The scheme is effectively trialling the "public/private partnership microfinancing model" that was one of six immediate priorities in last week's expert group report for Children's Commissioner Dr Russell Wills on tackling child poverty.
Trustee Dr Claire Dale, an Auckland University economist and member of the Child Poverty Action Group, said many families on low incomes were driven into borrowing from fringe lenders at "preposterous" interest rates because they could not get bank loans.
Nga Tangata is inspired by an Australian scheme run by Good Shepherd Microfinance, a charity which has lent to more than 100,000 people and families through 258 community agencies throughout Australia.
Chief executive Adam Mooney said the National Australia Bank had provided A$23 million ($29 million) in capital since the scheme started in 2003 and bore the risk of loan defaults.
He said the scheme was supported by the bank's employees and customers.
"NAB is now by far the highest ranked bank in Australia in customer satisfaction. Their community orientation is a significant factor in that."
A Good Shepherd New Zealand Trust has been established with an initial $5 million fund earned from developing the Aidanfield subdivision on property formerly owned by the Sisters of the Good Shepherd in Christchurch.
Former Auckland lawyer Fleur Howard, now based in Christchurch, is exploring ways to use the fund to assist disadvantaged women and children, including a loan scheme.
"When we get further down the track we would like to talk to the banks and the relevant government people, because I think there is a real appetite for it."
Nga Tangata is starting small, lending up to $2000 at zero interest for purposes that support personal and family wellbeing or building assets. Examples include car repairs, fridges, computers and a fence to protect a disabled child. It will also lend up to $3000 to consolidate debts.
Borrowers must have been clients of one of the eight budgeting agencies for at least two months, and must earn incomes low enough to get a community services card but high enough to repay the loans within two years.
• Christian Care Budget Service, Papakura
• O Le Lafitaga Trust, Mt Roskill
• Otara Budgeting Service
• Pakuranga-Howick Budgeting Service
• Presbyterian Support Northern Budget Service
• Salvation Army, Manukau
• St Vincent de Paul Society, Otahuhu
• Vaiola Pacific Island Budgeting Service
Scheme provided a TV for Christmas
Maxine and Tommy Brown's children got a new TV for Christmas thanks to South Auckland's zero-interest Nga Tangata loans scheme.
The Mangere couple, both invalid beneficiaries, have seven children of their own plus two adopted from the islands. They have been working with Otara Budgeting Service adviser Fuifui Tasi for two years.
Their payments on a van were in arrears and the finance company was demanding payment.
"When we first met, we drafted a breakdown of all their expenses and their income and there was a very big shortfall," Mrs Tasi said. "However, we tried to negotiate with hire purchases and loans and we can reduce the payments and offer more food assistance by writing to Work and Income, and through 2010 and 2011 we tried to cover that shortfall slowly."
But when it came to the Christmas of 2010, there was no money for presents. Mrs Brown went to see Mrs Tasi. "We only had a 14-inch TV. What I wanted to get for the kids was a big one," she said.
The Nga Tangata zero-interest loan trust had just started and Mrs Tasi suggested applying to it. The trust approved a $685 loan for the TV, to be repaid at $25 a week.
"We didn't miss a single payment," Mrs Brown said. "Just seeing the reaction on the kids' faces made it worthwhile ... "
After paying off the first loan, the family applied for another to buy a laptop and camera that Mrs Brown needed for a photography course. She was turned down because they were not essential items.
Two years later, the family is still paying off the van and other debts. The price of reducing each monthly payment is that all their debts got stretched out over longer periods. They have taken on paper delivery rounds to supplement their benefits, but money is tight.
"This Christmas there is still not really any money. We can't even afford a Christmas tree, to be honest," Mrs Brown said. But the gap between income and expenditure is slowly narrowing.