Ngā Tangata Microfinance: Unsafe Credit Costs Far More Than Money
Alarming new research from FinCap reveals the high occurrence of unsafe credit amongst those on low incomes in Aotearoa, and parallels Ngā Tangata Microfinance’s (NTM) experience over many years.
FinCap supports New Zealand’s 200 local budgeting services nationwide. Their recent survey of nearly 80 member services identified that:
Of more than 15,000 people each year receiving frontline budget advice, most are in debt and many have taken out high cost loans to cover basic living costs;
Most people have more than one debt, and one in four people have three debts or more;
9 out of 10 budgeting services believe that clients were worse off overall by having a high-cost loan;
Harmful behaviour from debt collection agencies was in the majority.
In stark contrast to the high cost loans provided by loan sharks that ensnared many of those in the survey, with loan capital provided by Kiwibank, and in partnership with FinCap and Budgeting Services, NTM provides safe, fair and affordable credit alternatives.
Robert Choy, NTM’s Executive Officer, says “In almost all cases, our clients have taken on high-interest debt out of desperation and because there are no other options available to them. That’s why we exist – to provide a service that’s safe, fair and affordable, and to show people that the debilitating stress of high-interest debt doesn’t have to be permanent.”
Ngā Tangata’s own research in 2016 highlights how safe fair no-interest loans hugely improve client’s well-being and peace of mind, reducing family stress, making a big difference in how they spend money, supplying more and better quality food and money to pay the bills.
Safe, fair loans provide a pathway out of unmanageable debt, and also provide the opportunity for developing money management skills that change peoples’ lives and give them back control.
“Around 80% of those NTM surveyed were women, and around three-quarters have young children. It’s the kids that ultimately suffer most when the family is caught in the debt trap,” said Mr Choy.
Law reform is urgently needed and it’s pleasing to see work currently underway towards a safer consumer credit environment, led by the Minister of Commerce and Consumer Affairs Hon Kris Faafoi.
Whilst a good start, the protective measures being planned need to go much further ensure a safe fair and ethical credit environment is established in Aotearoa.
The recommendations put forward by Ngā Tangata include: a cap on interest rates; addressing the negative impact of fringe finance company practice; enfolding mobile traders’ within the legislation; and a comprehensive creditor licensing system.
Without stronger legislative protection for the financially vulnerable, future surveys are likely to see this sad history repeating itself.
Background information on Ngā Tangata Microfinance
Established in 2010 with a vision of building a more just and equitable society for people on low incomes
Offers two loan products which are offered at no interest or fees. The first, NILS©, is to assist with family asset building and well-being or essential items or services. The second loan product, DRLS, is for relief from high interest debt, and debt consolidation.
Qualifying conditions for all loan applicants include a Community Services card or a low income and the willingness and capacity to repay the loan within 2 years.
Ngā Tangata values the relationship that clients have with a financial mentor. Financial education occurring alongside our loans is encouraged.
The three establishing organisations of NTM are Child Poverty Action Group, New Zealand Council of Christian Social Services, and New Zealand Federation of Family Budgeting Services.
The loan capital is provided by Kiwibank. J R McKenzie Trust provides funding for operational costs. Good Shepherd Microfinance in Australia and Good Shepherd NZ, has provided advice, support and information.
In 2013, Ngā Tangata Microfinance Trust and Kiwibank were supreme winners of the NZI Sustainable Business Awards.