Microfinance support for people on low incomes

The Government is supporting New Zealanders on low incomes with a suite of measures designed to help them become more independent.

“We’re increasing funding for Budgeting Services, procuring whiteware to bring down costs for beneficiaries, and exploring options for low- and no-interest loans through microfinancing,” Social Development Minister Paula Bennett says.

To help Budgeting Services provide advice for people to manage on low incomes, the Government has already announced an extra $1.5 million for 2013/14.

“In addition to the $8.9 million already provided by Government in 2012/13, this is intended to relieve pressure on the sector,” Mrs Bennett says.

“An issue of real concern within communities is the financial difficulties some people get into, resulting in unsustainably high debt.”

The Government wants to work in partnership with financial institutions and non-government organisations (NGOs) to explore alternative sources of finance for those on low incomes.

An example is microfinancing, where community-based organisations provide low- and no-interest loans to people with unsustainably high debt, or who cannot access affordable credit. 

“Some families are struggling with huge debt, often a result of borrowing from finance companies that charge incredibly high interest rates, or due to poor financial management or literacy.”

This debt can create hardship for families. The Government is aiming to prevent families taking on unsustainable debt by:

• Partnering with the private sector and NGOs to promote access to affordable credit for those who struggle to access it.
• Building financial literacy.

Some NGOs are already delivering microfinance on a small scale. Microfinance is well established in Australia and parts of the United States. These schemes typically provide loans for essential household items or debt consolidation.

“Officials will work with financial institutions and NGOs to identify options for government support,” Mrs Bennett says.

Ministers expect to make further decisions by September.

The Government is also working to get better value for beneficiaries and taxpayers by procuring whiteware at cheaper prices.

“Beneficiaries can get repayable grants for whiteware such as fridges and washing machines, but they often buy old equipment which, if it breaks down, has to be replaced and this increases their debt to Work and Income.

“We can do better by procuring whiteware through preferred suppliers at a lower longer-term cost to beneficiaries and the Government.

“It also means beneficiaries will get a guarantee on the new product, ensuring it is more reliable,” Mrs Bennett says.

The initiative is expected to reduce debt for both beneficiaries and the Government. A request for proposal will be issued next month.

“Combined with the wider work we’re doing with individuals and families through welfare reforms, getting more New Zealanders into work, and the Children’s Action Plan focusing on vulnerable children, these measures will make a real difference,” Mrs Bennett says.