Microfinance
A microfinance loan is either a no-interest loan, or a loan with a very low interest rate, but generally it only available for a small amount of no more than say $6,000, and for specific purposes. People with low incomes can use microfinance credit to break the cycle of high-interest finance and get themselves out of debt or purchase essential household goods.
While there are no fees and no, or little, interest charged on microfinance loans, there are conditions that have to be met in order to qualify for the loan. They are designed to help a household to avoid high-interest debt for household necessities, and aid applicants to achieve financial independence.
Microfinance isn’t a bank loan or a payday loan. They are provided by only two charitable organisations in New Zealand, with the idea being that once your loan is repaid, it allows someone else in the community to then access one.
Ngā Tāngata Microfinance have two types of loans available:
Asset Build Loan - Maximum available $2,000
This is to be used to purchase household items such as a fridge, washing machine, TV, bedding, but also includes health items like spectacles or dental work with repayments based on ability to pay over an agreed period of time.
Debt Relief Loan - Maximum available $3,000
This loan is available for applicants to pay off high interest loans from loan sharks or payday lenders with payments then redirected from wages or Work & Income to repay the new loan over a defined period.
Good Shepherd New Zealand was created to support women and girls experiencing disadvantage and hardship, by providing no interest and low interest loans. They provide the following:
No Interest Loan Scheme - Maximum available $1,500
These loans are available for the purchase of second-hand cars, having car repairs and maintenance carried out, purchase new household appliances, computers, or for the costs of dentistry and educational course costs and fees, all at zero interest with no fees and charges. Repayments are worked out based on your budget and what you can afford to repay and over what period.
Step Up Loan - Maximum available $5,000
These loans are available for the purchase of second-hand cars, having car repairs and maintenance carried out, purchase new household appliances, computers, or for the costs of dentistry and educational course costs and fees, but do carry an interest rate of 6.99% with no fees or charges, and can be taken out over a 2 or 3 year period.
Loan - Maximum available $10,000
These loans are available for debt consolidation, but do carry an interest rate of 6.99% with no fees or charges, repayable over a 3 year period. They could be used as a method of consolidating loans over $10,000 with the balance of existing debt being written off by the existing provider. You would most likely need help to negotiate a settlement on those terms which can assist you with.
How does microfinance work?
To be eligible for a microfinance loan, you will need to demonstrate to the microfinance provider that you are working with a financial mentor and are committed to reducing your debt. Once your application is made, it will then be assessed by the microfinance provider to determine if you are eligible or not.
If your microfinance loan is approved, you will then work with your financial mentor to create a repayment plan and agree to the loan terms and conditions. Debtfix works with the two microfinance providers in New Zealand, being Ngā Tāngata Microfinance and Good Shepherd New Zealand.
Who can benefit from microfinance?
The eligibility requirements vary between providers, but if you have a limited income and show a willingness and capacity to repay the loan, microfinance may be a suitable solution for you.