|
Micro-finance refers to a range of financial services and products designed to assist people who are largely excluded from mainstream financial services. This typically involves:
-
Access to affordable, small and unsecured personal or business loans either on a no interest or low interest basis;
-
Products that provide a safe transition to mainstream financial services;
-
Building a customer's financial capability such as budgeting and savings skills, small business skills and a credit history;
-
Insurance.
1. Micro-enterprise Development
NAB will commence a study into the feasibility of establishing a mentored loan scheme to support micro-enterprise development in Australia. People on low incomes or with no credit history have few options when seeking small loans to support a basic business enterprise. This may range from the purchase of computers or trade tools through to office equipment and training costs.
Only a small proportion of micro-businesses access start-up capital through a financial institution relying instead on personal savings or the use of personal assets as collateral. Having few assets and limited savings is a barrier to starting an enterprise.
The study will be completed in association with the Boston Consulting Group. Over the next six months we will assess:
-
The community need for micro-enterprise development loans;
-
The business capability needs for micro-enterprise loan customers;
-
The options for delivering micro-enterprise loans to the community;
-
A roll out plan for NAB micro-enterprise loans.
From NAB's and Good Shepherd's Step UP program, NAB has gained some insight into the necessary success factors for such a program:
-
Such programs require volunteer assistance and partnerships with community groups to reach the target customer and deliver appropriate support;
-
Successful use of the loans requires a strong relationship between the loan recipient and a community organisation;
-
The loan application process needs to be significantly simpler to that which is traditionally used by banks;
-
We need to be clear on our success measures - the number of loans written needs to be secondary to the level of mentoring provided or level of increased wellbeing or employment.
NAB aims to establish a micro-enterprise development loan pilot within the next year. We have provisionally allocated $18m in loan capital to support this program.
2. Capital support for No Interest Loans Schemes (NILS®)
Good Shepherd Youth and Family Service developed No Interest Loans Schemes (NILS® ) over 25 years ago, and co-ordinates the National NILS Network which currently consists of over 240 NILS programs around Australia. NILS offers small no interest loans for people on low incomes for the purchase of essential household goods.
According to Good Shepherd's 2005 annual National NILS data, there are over 6,000 active no interest loans across Australia under these schemes with an average loan size of $560. The loans are typically paid off over 18 months.
Access to loan capital, and assistance with the costs of operating NILS, are hindering the greater use of this well established micro-credit scheme.
It is NAB's view that access to loan capital should not be a barrier to growing NILS to wherever they are needed across Australia.
In association with Good Shepherd Youth and Family Service, NAB will be making available $3.3m in loan capital to grow NILS in Victoria. NAB and Good Shepherd Youth and Family Service will be working with the Victorian Government to help see the growth of NILS across the State. An announcement on how this program will operate will be made in the two months.
Discussions on supporting NILS in NSW have commenced with Good Shepherd and NILS providers in that state.
Based on the need for NILS capital in Victoria, NAB is committed to making available up to $10m over the next three years towards meeting the loan capital requirements of new and existing NILS programs across Australia.
Access to this capital will be done in partnership with Good Shepherd Youth & Family Service. We expect this will take the form of a staged "expression of interest" for existing NILS providers. We will also work with State, Territory and Federal governments to help secure ongoing administration funding for NILS programs, in particular for the growth of new NILS providers.
The NILS capital supplied by NAB will essentially become community funds lent on an ongoing basis for continual "recycling" by community based NILS providers.
3. Expansion of the Step UP program
People who are financially disadvantaged have few options when seeking small personal loans from banks when they do not have a credit history. The only mainstream banking option is typically a credit card which can add to debt problems for people on low incomes. Funds may also be accessed from alternate finance providers such as payday lenders which may exacerbate debt problems with interest rates up to 48%.
Good Shepherd Youth and Family Service originally approached NAB with the idea of developing a low interest loan to address this need. From this the Good Shepherd and NAB Step UP low interest loan was developed. It is an unsecured not-for-profit loan from $800 up to $3,000. It is designed as a bridge between NILS (which sit outside the mainstream financial services system) and access to affordable, safe mainstream credit.
The first Step UP loan was written in October 2004. Uptake in the loan has been slow - 43 loans are now active. During the period over 520 enquiries for loans have been made through the pilot locations in Melbourne city and surrounds, the Mornington Peninsula (Vic), the Blue Mountains (Lapstone to Mt Victoria), Lithgow, Bathurst, Cowra and Orange (NSW).
At each location a community-based micro-credit worker case manages the loan, from initial interview and budget review to loan application. The majority of loans have been written for second hand cars and essential household goods. Loans have also been taken up for medical expenses and training course fees.
NAB will be doubling the reach of the program by offering Step UP in South Australia and in WA (Perth, Geraldton, Kalgoorlie). NAB views Step UP as a vehicle for learning about micro-credit products and how best to assist people on low incomes who traditionally don't bank, but prefer loans from non-mainstream lenders.
Approximately $0.5m will be allocated to run the program over the coming year. At this stage the StepUP pilot will continue through to October 2007. Capital requirements for the program are likely to reach $2m in three years (assuming expansion beyond the pilot phase). The majority of NAB's investment in this program will come in the form of support costs.
Key insights NAB has gained to date on the difficulty in offering micro-credit products to low income individuals and families are:
-
The people who NAB expected to take up the product are not always well connected to their community - it is difficult to reach them and tell them about the existence of the product.
-
Banking products, such as general loans, are viewed with suspicion by the target customer. Traditional bank loan processes are often seen as intimidatory and generally not worth the effort.
-
Repayments are typically high - primarily because of the relationship that is established between the micro-credit worker and the customer (to date there have been no defaults on StepUP loans).
4. Simple Insurance
The need for safe and affordable financial services for people on low incomes is not limited to loans. Later in 2006 NAB will be offering low cost insurance for Step UP customers.
This not-for-profit initiative is a partnership between NAB and Allianz. Simple home, contents and car insurance will be offered with the aim of protecting the assets that individuals purchase with their loans.
View the Media Release - NAB backs endeavour with $30m for affordable small loans
View Mr Fahour's speech - Backing People Not Just Banking Them
For further information please contact
Richard Peters
Head of Corporate Social Responsibility, Australia
richard.c.peters@nab.com.au
Ph 02 9237 9827
Corinne Proske
Manager, Corporate Social Responsibility
corinne.proske@nab.com.au
Ph 03 8634 1571
|
