Loans of up to €2,000 for at-risk households advocated in Report funded by Social Finance Foundation and Central Bank of Ireland
Thurs. May 21st, 2015
The establishment of a new personal microloan service to assist people who have no access to loan finance other than moneylenders is proposed in a new Report, published Thursday, May 21st
The Report, “Creating Credit, not Debt,” by Georges Gloukoviezoff, UCD Geary Institute for Public Policy, was jointly funded by the Social Finance Foundation and the Central Bank of Ireland.
Under the scheme, loans typically of about €500 but up to €2,000 could be made available to anyone currently ineligible for mainstream banking or credit union loans, subject to repayment capability. It is proposed that it be administered through the credit union movement.
According to the Report’s author, Georges Gloukoviezoff, tens of thousands of households are currently unable to access credit for even the smallest amount or due to a sudden financial requirement or crisis.
“Essential spending on items ranging from back-to-school costs to a broken electrical appliance or car is impossible for many families, due to an inability to borrow because of unemployment, pre-existing debt or poor credit ratings.
“The only resource of such households currently is to access money from moneylenders, but even licensed moneylending firms can charge as high as 260% interest annually, leading to a never-ending cycle of loans and repayments,” he says.
Specifically the Report proposes:
· A personal microloan facility providing amounts of up to €2,000, with eligibility based on an ability to repay and being excluded from mainstream services
· Borrowers would apply for microloans through the credit unions, or
· Deterring or reducing dependency on future high interest borrowing and where appropriate, linking the scheme with MABS or other relevant organisations in order to ‘restructure debts.’
The Report refers to 2011 statistics provided to the Department of Social Protection that 54.4% of households are unable to afford an ‘unexpected expense’ while 17% of households were going into debt for ‘ordinary living expenses.’
It identifies examples of microloan facilities in other jurisdictions, including:
- Scotcash in Scotland, launched in 2007. The average loan is £531, typically repaid over 42 weeks.
- StepUP Loans, a partnership between Good Shepherd Microfinance, which provides management, and National Australia Bank, which provides operational funding for lending.
- Microbank Spain, which since 2007 caters for families with below €18,000 income a year and operates through 5,700 branches of the mainstream Caixabank
According to Georges Gloukoviezoff, “Ireland currently needs a similar type of microloan scheme to cater for some of the estimated 360,000 people who currently rely on some category of moneylending to make essential purchases. Of these many thousands are trapped in a very serious cycle of debt and would form a priority.”
“Evidence abroad is that people using these services appreciate their benefit and will repay the loans. As an example the default rate on StepUP loans in Australia, set up in 2004, is just 1%
Publication of the Report was welcomed by Angela Black, CEO of the Citizens’ Information Board.
“I particularly acknowledge its emphasis on the need to develop a financial model to move people away from dependence on unregulated moneylending, through initiatives that have already proven successful in other jurisdictions, she said.
Sheila Nordon, Chairman of the Social Finance Foundation said the Report highlighted a vacuum in availability of loans for financially disadvantaged families and individuals.
“We will review the contents of the Report with a view to enabling implementation of its key proposal to deliver targeted loan services to the many thousands of people who cannot access even emergency funding currently.” she said.
- The author of ‘Creating Credit, not Debt,’ Geroges Gloukoviezof, is a Senior Researcher at the UCD Geary Institute for Public Policy. He has a PhD in Economics and has 15 years experience working on financial exclusion and over-indebtedness at national and international level. He currently leads a research programme, funded by the European Investment Bank and the International Labour Office, which aims at assessing the impact of microfinance in Europe.
ENDS
For further information on this media release please contact:
John Gallagher
John Gallagher Consulting
Tel. 087936988
