The Salvation Army will be the front door for a new Government-backed loans scheme aimed at saving low income families from loan sharks.
The inspiration for the scheme came from a similar one run in Australia by a financial institution and a microfinancing body which was started by Catholic nuns.
The Community Finance Scheme in New Zealand starts with $10million in initial finance from the Bank of New Zealand and a small government subsidy for administration costs.
A pilot scheme has been launched and will run at the Salvation Army’s Manukau and Henderson offices, but only a handful of loans will be able to be processed initially.
If the pilot proves successful it will be rolled out in other cities, including Wellington and Christchurch.
Two types of fee-free loans will be available.
A no-interest loan scheme (“NILS”) of up to $1000 for up to 18 months will be available from early September.
“StepUp” loans of between $1000 and $5000 for up to three years at 6.99 per cent interest are now available.
Both loans are only for “essentials” including buying and repairing second-hand cars, new household appliances and computers, and health and educational costs.
They are not available for other uses such as paying for bills, fines, funerals or travel, the New Zealand Herald reported.
Both are available to people who qualify for a community services card, have used up any entitlements they have for loans from Work and Income and can’t borrow from mainstream banks, but can provide bank statements or other proof that they can repay the loans.
Applicants also have to provide proof of identity, proof of address and documents showing all their existing payments on regular bills and debts.
Both types of loans have been copied from similar schemes run in Australia for the past decade by BNZ’s parent company National Australia Bank and Good Shepherd Microfinance, founded in 1981 by Catholic nuns of the Good Shepherd.
In New Zealand, a state subsidy believed to be about $250,000 a year for three years will be split between the Salvation Army and Good Shepherd Trust.
The trust has provided all its intellectual property for the local scheme, will train Salvation Army and BNZ staff, and has appointed an Auckland-based project manager.
Loan sharks have been charging interest rates at levels of 10 per cent a week, for example.
Sources