A new no-interest loan provider has government backing to try to help low-income families out of the debt traps set by high-interest loans.
Photo: 123rf
The charity Vaka Tautua yesterday became part of the Social Development Ministry's community finance initiative.
Vaka Tautua is a national 'by Pacific for Pacific' health and social service provider that aims to help improve the health and well-being of Pacific people in New Zealand.
As well as social service providers Salvation Army and Aviva, Vaka Tautua is now able to lend money to those in hardship, in a bid to stop them borrowing from high-interest charging providers.
Chief executive Vui Mark Gosche said it was a practical plan to help people out of poverty.
"They are really captive to the loans market where you're paying 20 to 30 percent interest and we want to get them out of that trap because they're already low income.
"They're quite often not in sustainable housing, they've got mental health and disability issues and a whole lot of things impacting on them so being able to access no interest and low interest loans is really going to help them lift out of that poverty trap that they're in right now," he said.
Mr Gosche said loans would only be given to people who could afford to repay them.
"The basic criteria is very simple - that they can make repayments on the loan - so people might have only $10 or $20 a week left over and that sort of person is probably likely to get the loan.
"If they can't [make repayments] we will work with them and may have to defer the application until they get themselves into a small surplus."
The loans fall into two categories, low-interest and no-interest. The low-interest loan could be up to $5000, on a interest rate of 6.99 percent per annum and would need to be paid back within three years.
Mr Gosche said this was ideal for big ticket things, like a car, so people could get to work or become employed.
The other was a no-interest loan between $1000 and $1500 for necessities like household items or dental work. It would need to be paid back in 12 months.
"That's really to get people out of dire straits."
He said Vaka Tautua, which has offices in Auckland and Porirua, worked with people to improve their financial capability and being able to offer a loan was only part of a bigger picture.
"Some people will come and not be eligible so we'll do the work over months, things like set them up and show them how to use internet banking so they can save some money through bank fees. It's that financial education that makes the big difference not just the loan itself.
"This is a very practical 'here's some money to help you out', which we've never been able to do before."
Mr Gosche said he expected a lot of loan requests to come in for cars and car repairs.
"We expect to get a lot of people from the employment sector where a car is vital so you think of all the home-based care workers and all the disability and aged care workers that need to travel around the community they need a reliable car but they've traditionally been on really low incomes.
"We think the hospitality sector as well, there's a lot of low paid workers who do unusual hours when public transport's not available."
Minister for Social Development Carmel Sepuloni said the initiative had already lent $2 million to low income earners.
"[It's] saving them more than $1 million in interest and fees they might have had to pay if they'd borrowed from predatory lenders."
Ms Sepuloni said extending the service to Vaka Tautua would help more Pacific people get access to loans, which would lift their quality of life.
Mr Gosche said Vaka Tautua confirmed its first loan on Thursday - $5000 for an Auckland single mother to buy a car.
"It's going to set her up, obviously with great opportunities for the future."
