There are many people who find it difficult to access affordable and appropriate financial products, such as loans through mainstream providers. This makes them vulnerable to using credit that can be very costly and may put them into a cycle of debt that is very hard to get out of.
For low income earners or people in financial trouble, there are other ways to borrow money without having to resort to unaffordable or risky loans.
Microfinance supports people who need a small amount of credit in order to purchase essential household items and, in some cases consolidate debt, meet unexpected expenses or start a small business.
Examples of microfinance activities in Australia include:
- loans (e.g. no interest loans, StepUP and Community Development Financial Institutions)
- savings schemes (e.g. Saver Plus)
- buying schemes
People who access credit through these schemes are also supported with financial education, including budgeting support. Each loan application is assessed on the person’s capacity and willingness to repay the loan. This ensures that the loans are affordable. Service providers are also able to connect applicants to other services, including financial counsellors, to help them in a range of ways irrespective of whether a loan is granted.
Microfinance activities are funded by the Department and delivered mostly by not for profit community organisations in partnership with financial institutions, such as banks and credit unions.
No and low interest loans
The No Interest Loans Scheme (NILS) is for people who need safe and fair access to credit they can afford. These loans are used to buy essential household items like washing machines, computers or furniture. These loans need to be repaid, however you do not need to pay interest.
Loans are generally between $800 and $1,200 and you must have a health care card or pension card (or qualify for one) to be eligible. You must also be willing and able to repay the loan within 12 or 18 months.
As part of the NILS arrangements, Good Shepherd Microfinance administers a NILS accreditation process under which organisations can seek accreditation of their no interest loan program. As at January 2013, NILS was being delivered by more than 220 accredited community partners at over 600 locations around Australia. NILS is a registered trademark of Good Shepherd Microfinance.
StepUP provides low interest loans to people on low incomes through community providers across many parts of Australia, with loans of up to $3,000. StepUP acts as a stepping stone to help people on low incomes transition into mainstream credit products.
Loans can be used for a range of purposes including essential household items like a fridge, washing machine, bed, TV, clothes dryer, health aids and education costs. To be eligible you need to have a health care card or pension card. The repayments are arranged with you so that they are affordable.
Currently the interest rate of the StepUP program is at 3.99 per cent, which is much lower than that of mainstream loan products.
NILS and StepUP are run by Good Shepherd Microfinance, in partnership with the National Australia Bank and the Australian Government. StepUP is being delivered in 35 locations across Australia.
To find your nearest NILS and StepUP providers, visit Good Shepherd Microfinance website.
Community Development Financial Institutions (CDFI) Pilot
CDFIs are also able to provide small loans alongside financial literacy training. There are a number of CDFIs across Australia:
- Community Sector Banking, through Kimberley Employment Service in North West Australia and Nahri in South East Queensland, provide loans up to $4,000 through the In-roads programs. Loans can be used for a range of purposes including debt consolidation. More information can be found at www.in-roads.com.au.
- Many Rivers Microfinance supports individuals to establish a small business. They provide small business support, financial literacy training and access to finance to aspiring small business owners in 13 locations across New South Wales, Queensland and Western Australia. More information can be found at www.manyrivers.org.au.
- Fair Loans Foundation offers a loan up to $4,000 through the internet. Loans can be used for any purpose and can also assist people to establish or repair their credit record, enabling them to access mainstream credit. More information can be found at www.fairloans.org.au.
- Fair Finance Australia offers a loan up to $4,000 for debt consolidation, emergencies, unexpected expenses or any other worthwhile purpose in Brisbane and the surrounding areas. See www.foresters.org.au/individual-finance.html for more information.
The CDFI pilot has been extended until 30 June 2014.
CDFI organisations use Government funding to cover operational costs and Government funding in turn has leveraged private sector funds of up to $5 million for loan capital.
An independent evaluation of the effectiveness of the CDFI pilot was undertaken by Westwood Spice and was published in February 2013. The evaluation found that many clients grew in confidence and self-esteem as a result of having been deemed credit worthy and successfully making loan repayments. This highlights the positive effect that a small amount of affordable credit can make to someone who is financially excluded.
Saver Plus assists families on lower incomes to develop a savings habit, build assets and improve financial capability. Participants set a savings goal and receive support and education to help them achieve it. When they reach their goal, ANZ matches their savings, dollar for dollar, up to $500.
Matched savings are then spent on costs relating to participants’ vocational training or their children’s schooling, as education can broaden life chances.
Set up in 2003 to encourage saving for educational expenses, Saver Plus is now offered by a range of community agencies in almost 60 communities across all states and territories in Australia. Saver Plus is an initiative of the Brotherhood of St Laurence and ANZ, delivered in partnership with Berry Street, The Benevolent Society and The Smith Family and other local community agencies. The program is funded by ANZ and the Australian Government, with ANZ providing matched savings for participants.
Matched Savings Scheme (Income Management) Payment
The Matched Savings Payment is an incentive payment to encourage people on income management (excluding Voluntary Income Management) to develop a savings pattern and increase their capacity to manage their money.
Eligible people can receive $1 for every $1 they save, up to a maximum of $500 (certain conditions apply).
To receive the Matched Savings Payment a person must:
- be income managed (excluding Voluntary Income Management)
- complete an approved money management course
- maintain a pattern of savings from their discretionary funds for 13 weeks or longer after the commencement of the approved course
- have not received a Matched Savings Payment previously.