A community finance group is calling for millions of dollars to be invested in small, zero-interest personal loans to help the poorest of the poor who are denied credit by traditional lenders.
“These loans help break the cycle of poverty and problematic debt and improve the financial well-being of the loan recipient and their family for generations to come,” said Natalie Vincent, CEO of Ngā Tāngata. Microfinance Trust (NTMT).
The trust had recycled half a million dollars in seed capital from Kiwibank, which grew to a portfolio of $2.5 million in community loans, valued at a maximum of $3,000 each to pay off debt or $2,000 dollars for purchases, Vincent said.
“When you provide fair and equitable loans that people can afford to repay, coupled with ongoing support, they are motivated and able to improve their financial stability,” she said, adding that all borrowers should work with a financial mentor to qualify for assistance.
“So 80% of the loans that people apply for are approved, and we have a 94% repayment rate.”
The no-fee, interest-free loans had a multiplier effect because research indicated that the loans generated a return of $3.60 for every dollar spent, in terms of improving clients’ financial well-being, Vincent said.
“Each of these loans has helped low-income New Zealanders and their whānau earn money, enabling them to pay off debt or buy the essentials they need. Above all, working with a financial mentor means that our borrowers learn how to manage their money in the future.”
The charity had provided 1,000 no-cost, interest-free loans over the past 10 years to low-income and heavily indebted people, but it would like to do more.
Vincent said the trust is attracting organizations and individuals to support its work with donations and sponsorships, as it aims to double the number of loans it is able to offer clients over the next five years. .
“We would like to see maybe another million dollars of capital made available to us, and at least another half a million dollars each year for operational funding.
“This way, we really believe we could top another 1,000 loans in five years.”
Demand for the services has increased in recent years, with some customers paying high interest rates, at an average rate of 35%, she said.
“We say no, don’t go. Don’t go somewhere that will cost you 50% interest. Come and see us, we offer safe, fair, kinder and affordable loans for people with low incomes or those who are financially excluded.”