Micro Finance – Record breaking year for microloan applications for people doing it tough

A record number of loan applications were recorded by Ngā Tāngata Microfinance last year for people needing help covering everyday costs.

The not-for-profit saw an increase of 128% for those applying for small loans to cover basic health care costs, and basic household items such as whiteware and car repairs. There was a 24% increase in applications for loans to repay high-interest, unmanageable debt.

“These numbers are staggering”, Ngā Tāngata Microfinance general manager Natalie Vincent says. “This increase in applications and their specific purpose shows that people are having to borrow money for basic life essentials. They simply do not have enough to live on, or to save. Beneficiaries and low-income earners have little if any discretionary spending.”

Latest statistics show the costs of food and rent continue to rise while wages and benefits continue to stagnate.

“Financially vulnerable families are getting locked in the poverty trap by inadequate income support rates,” Vincent says. “Being poor is expensive. Those living on the margins have to find alternatives, and too often that means turning to fringe lenders which traps people in a debt spiral”.

The punitively high interest rates and excessive administration and penalty fees make repayments for beneficiaries unsustainable.

Changes to the CCCFA implemented in 2020 were a great start in protecting the most vulnerable in our communities but credit is still ferociously expensive for those forced to use a second or third tier lender, or worse, a loan shark.

Since those changes came into effect in June 2020, NTM has repaid on behalf of its clients $128,000 in fringe lender high-interest debt with an average nominal interest rate of 45% and overall more than $228,000 in debt-relief loans.

NTM welcomes the Commerce Commission’s investigation of high cost, short-term lenders. Most recently Moola, who previously charged interest rates in excess of 500% annually on short term loans, has agreed to credit or refund $2.8 million to current and former borrowers after reaching a settlement with the Commission over its unreasonable credit and default fees.

The continuing crisis of COVID-19 has made access to safe, fair credit and adequate incomes for our low-paid workers and beneficiaries even more urgent.

Ngā Tāngata Microfinance is a not-for-profit organisation providing fees-free and interest-free loans to New Zealanders experiencing tough circumstances, alongside wrap-around financial capability support.