Unbanked

Reducing Poverty, One Loan at a Time

Social_Enterprise_NgaTangata

High-interest loans can be crippling for New Zealanders struggling with debt. Nga Tangata Microfinance Trust, one of the country’s first formal microfinancing initiatives, provides small, safe and fair loans to help Kiwi families break out of the debt trap.

To many of us, a fridge breaking down, a doctor’s bill or an empty pantry wouldn’t plunge us into a financial crisis.

But to Kiwis on a low income, sudden financial emergencies can prompt them to take what they see as the only way out: high-interest loans from loan sharks or mobile traders.

Dr Claire Dale, of the Child Poverty Action Group, and founder of Nga Tangata Microfinance, describes our consumer lending environment as the “wild west”.

Dr Dale says New Zealand – unlike most of the rest of the world – has no legal limit on interest rates or the total cost of credit.

She says loan sharks may charge 1% interest per day, which may seem cheap until you realise that amounts to 352% annually.Mobile traders charge inflated prices and high administration and penalty fees,giving them a profit of more than 100% on every transaction.

Many Kiwis have found themselves in escalating debt by taking out pay day loans, which are short-term cash loans typically sold to people who can’t borrow anywhere else.

Sorted, which is run by the Commission for Financial Capability, says interest on pay day loans can be several hundred percent a year, and loan sharks may use heavy-handed techniques to make people pay up.

Last year, Google banned ads from lenders offering pay day loans on the grounds that the companies used “slick advertising and aggressive marketing to trap consumers into outrageously high interest loans”. 

The Commerce Commission says there is near-universal agreement of the existence of a debt culture in New Zealand,created by easy access to debt.

40% of credit-related complaints were about finance companies in 2015, despite them only making up 3% of the credit market and law changes that updated lenders’ responsibilities, increased penalties and provided more enforcement tools. (

Source was on the interest.co.nz site, reporting on the Commission's Consumer Issues report.

 

Breaking the debtcycle

It’s for exactly these reasons that Nga Tangata Microfinance Trust was envisaged in 2009, and why Kiwibank came on board in 2010.

Microfinancing is about giving small, interest-free loans to low-income people so they can get the things they need or get back on their feet.

Nga Tangata, one of New Zealand’s first formal micro financing initiatives, started out by offering small, safe and fair loans to households in South Auckland. It now works with about 50 budget advisors or financial mentors across the country.

Spokesperson and Executive Officer Robert Choy says Nga Tangata is one of very few providers giving no-interest loans to repay high-interest debts.

“We work side-by-side with financial mentors,”he says.

“We offer only small, manageable loans of up to $1500 for asset building or family well being – things like white ware or car repairs – or debt relief loans of up to $3000.”

Nga Tangata’s loans are interest-free and come without fees, so people pay back only what they’ve borrowed. And they can’t borrow so much money that the loan is impossible to pay back.

Loans are given only after careful consideration from a loan committee made up of representatives from the community, says Robert.

“The trust’s loans are given only to people in genuine need and can only be used to help borrowers move to a better place.

 

Supporting Kiwis to get ahead

Nga Tangata’s approach seems to be paying off. Demand for its services increased by 105% in 2016 compared to the previous five years, and in excess of 96% of loans are repaid.

It has already helped families pay off almost$400,000 worth of debt.

In just one of Nga Tangata’s hundreds of success stories, a budget advisor for the trust worked with a client who was paying an interest rate of 144%.

Happily, the client was eligible for a debt relief loan. The client was able to pay off the loan, and for the first time in a long time started to get ahead.

Kiwibank assists Nga Tangata by providing the capital to cover its loans. It also provided essential business support and advice to set up the programme.

The bank’s Corporate Social Responsibility Manager,Julia Jackson, says supporting Nga Tangata is part of Kiwibank’s commitment to helping where it’s needed, and giving all Kiwis a fair shot.

“Nga Tangata does fantastic work to help Kiwis who are genuinely struggling,” she says.

“Kiwibank is proud to work with Nga Tangatato support people who might not meet our credit criteria or who need loans that are smaller than we normally provide.

“For us, the biggest positive impact we can have is ensuring that we’re helping people to get ahead.

“That means being honest about the challenges that many New Zealanders are facing today, and looking at how we can stand by people through tough times. Our partnership with Nga Tangata enables us to support people when they’re at their most vulnerable.”

 

Where to seek help

If you’re struggling to get out of debt,contact your local budgeting advice service for assistance. The New Zealand Federation of Family Budgeting Services may be able to help you find an advisor.

You can ask your budgeting advisor if you meet the criteria for a Nga Tangata loan.

As well as working with Nga Tangata, Kiwibank has others ways of supporting customers going through financial hardship.

Visit Kiwibank or call 0800 11 33 55 to discuss options that may be available to you.