Ngā Tangata Microfinance breaking hold of predatory lenders
7 December 2017
Ngā Tangata Microfinance breaking the hold of predatory lenders
Ngā Tangata Microfinance has helped hundreds of financially vulnerable people to escape from the punishing and stressful cycle of debt caused by predatory lenders.
With loan capital provided by Kiwibank, Ngā Tangata Microfinance (NTM) provides no-interest loans to qualifying clients for family well-being and relief from high-interest debt.
An evaluation conducted by the University of Auckland’s Centre for Applied Research in Economics found NTM’s no-interest loans were crucial in helping low-income clients break the cycle of debt caused by predatory payday and fringe lenders.
NTM’s Executive Officer Robert Choy said clients were looking for a hand up, not a handout.
“There’s a mistaken belief people use high-interest lenders and truck shops to buy unnecessary or luxury items. In fact, most borrowing is for household necessities. The less income you have, the more often emergencies occur – the car breaks down, the fridge stops working, children become ill, or there’s financial stress caused by reduced work hours or the loss of a job.
“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.”
Partnering with local budgeting advisors, NTM has now disbursed more than $660,000 in no-interest loans to more than 300 clients, with 70% of the support being for relief from high-interest debt. It is estimated these loans had potentially saved clients a total of more than $1 million in interest and additional costs. Requests for help continued to trend up – 30% more NTM loans were approved in the past 12 months compared to the previous year, amounting to nearly 130 loans worth $275,000.
Evaluation respondents said NTM’s no-interest loans had hugely improved their well-being and peace of mind, and reduced family stress.
“One respondent told us, ‘there is finally light at the end of a long, dark tunnel’,” said Mr Choy.
“That reduction of stress – and the desire for a better future for themselves and their families – was a common theme.
“Around 80% of those 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.”
Mr Choy said alleviating the enormous stress caused by unmanageable debt was only one aspect of what NTM’s loans did to help its clients.
“By working directly with support agencies such as budgeting services and their advisors, we’re building a pathway to long-term financial inclusion, capability and independence.”
The proliferation of payday and fringe lenders was a major social concern, said Mr Choy.
“They are like a fast-growing cancer in the personal loan market. With many having an online presence, there appears to be more lenders than ever before, and the practices and ethics of most are highly questionable and exploitative.”
NTM was stepping up work to break the hold of predatory lenders by expanding its interest-free, no fees services to wider Auckland, Northland, Waikato, Bay of Plenty, Gisborne, Manawatu, Levin, Taranaki and Dunedin.
Mr Choy welcomed Commerce and Consumer Affairs Minister Kris Faafoi’s promise to look at capping New Zealand's payday loan interest rates.
“That’s an important step. But we also need to look at the other worrying practices in fringe lending and how we can help people make better decisions in the first place.”
Mark Wilkshire, Kiwibank Group Manager Marketing, said NTM was helping people establish stronger financial foundations.
“We’re all about helping Kiwis to make informed decisions about their financial futures to achieve independence.
“Kiwibank is proud to support Nga Tangata Microfinance to help people improve their own lives and the lives of their families.”
NGĀ TANGATA MICROFINANCE EVALUATION
A PATHWAY TOWARD FINANCIAL INCLUSION AND WELL-BEING*
80% of loan recipients who responded were women
73% of loan recipients who responded had dependent children
51% were solo parents
42% of respondents were Māori, with the remainder evenly split between Pākehā and Pasifika
75% of respondents said the loan made a huge improvement to well-being and peace of mind
Nearly 70% of respondents said the loan significantly reduced family stress
Nearly 80% said the loan made a big difference in how they now spend money (more food, better quality food, enough money to pay bills, paying bills on time)
* Source: Centre for Applied Research in Economics, Economics Department of the Business School of the University of Auckland