Child Poverty Action Group (CPAG) says that successful ethical lending schemes such as Nga Tangata Microfinance (NTM) that are designed to empower families in hardship and reduce the effect of debt, should be a model for adoption nationwide.
A new report by NTM shows the not-for-profit organisation’s success in helping hundreds of financially vulnerable people to escape from the punishing and stressful cycle of high interest debt.
With loan capital from Kiwibank, and operations funding from J.R. McKenzie Trust, NTM provides no-interest loans to qualifying clients for family well-being and relief from high interest debt. The report shows that three-quarters of those who have received the help of NTM, and who participated in the survey, have dependent children in their care.
Dr. Claire Dale, CPAG researcher, says families borrowing from loan sharks who charge excessive interest rates are often forced into an unmanageable and endless cycle of debt.
“Fringe lenders have become commonplace in Aotearoa-New Zealand, advertising their services as a quick and simple way to obtain things needed, when other sources of finance aren’t available,” says Dr Dale.
“It is a tempting option for families with children whose need is urgent, and incomes are totally inadequate. But they are forced into even greater poverty through the debt trap.
“There is an insidious and predatory side to fringe lenders and also mobile traders, who profit from charging high fees, high rates of interest and inflated prices to vulnerable people.”
Robert Choy, Executive Officer of Nga Tangata Microfinance, says pay-day lenders often charge at least 1.2% per day or 438% annually. Third-tier finance companies provide loans with interest rates ranging from 20-40%, but the default interest rate can be up to 10% above that, with extra penalty charges.
The NTM report shows that its zero-interest loans provided to qualifying borrowers have significantly improved their well-being, reduced stress and given them peace of mind.
It is estimated the loans have saved recipients collectively, over a million dollars in interest and other charges.
CPAG applauds the continued efforts by Nga Tangata Microfinance, hopes the growth and development of NTM over the years will spell the end of loan shark operators, and increase in this type of support for low-income families across the nation.
“Every child deserves the opportunity to thrive and this can be achieved when communities have access to the support that reflects, not exploits, their needs,” says Dr Dale.