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NAB has launched a pilot with alternate credit provider, Mobile Finance Pty Ltd (trading as Money Fast), who will offer small personal loans of between $1,000 and $5,000 on a break even basis.
The NAB Small Loans Pilot is not a commercial venture for NAB, but an extension of our microfinance programs and NAB's commitment to helping Australians access fair and affordable banking services. Our aim is to demonstrate the costs of offering short-term, small loans in the fringe credit market and to draw attention to the high interest rates and charges prevalent in that market.
Read our first report on the pilot: Fairer lending in the fringe - NAB Small Loans Pilot quarterly report (June-August 2008) (PDF, 102kb).
Pilot intentions
The fringe lending market has increased significantly in size and visibility in the past few years and has been criticised for exploiting borrowers with high rates and charges.
There is a need for greater debate about the cost of providing small loans to people that can not access affordable credit through mainstream financial institutions like banks. People are often forced to seek finance from alternative sources such as fringe credit providers and pay day lenders.
In NSW, ACT and Victoria annual interest rates are capped at 48% p.a. (this cap includes fees in NSW and ACT, but in Victoria excludes fees and is for unsecured loans), but in other states fringe credit providers can charge interest rates as high as several hundred per cent. The Queensland Government has also introduced a bill to parliament to introduce a 48% p.a. cap, including fees.
The NAB Small Loans Pilot aims to demonstrate the actual costs of offering loans in the fringe credit market to people who do not traditionally borrow from mainstream lenders.
Pilot details
The NAB Small Loans Pilot aims to prove the actual costs of offering loans between $1,000 and $5,000 offered to clients over a one year period. These loans will be priced as a break even product.
Under the pilot, Mobile Finance will offer small personal loans of between $1,000 and $5,000 on a break even basis for loan terms of one year. A nominal annual interest rate of 28.25% p.a. will apply to these loans (comparison rate of 28.25% p.a.). The break even interest rate on offer by Mobile Finance is significantly less than the interest rate caps in place in some states and has been set so that the costs of providing the loans are effectively covered by interest income.
Loans will be available via telephone and the internet Australia-wide.
As the credit provider, Mobile Finance will manage all day-to-day operations including promotions and advertising, application processing, loan approval, loan and customer management.
NAB will provide up to $1 million in loan capital to Mobile Finance to fund loans, which are expected to be written over 18 months with an average loan size of $3,000.
NAB has released a breakdown of all forecast break even costs and revenues and will monitor and publish these for the duration of the pilot.
NOTE: The pilot will only look at one segment of the fringe credit market - loans between $1,000 and $5,000 for a term of 12 months. NAB notes that a high proportion of lending in the fringe credit market is, however, for payday loans of less than $350 for short periods of two to four weeks.
Advisory Group
An advisory made up of Queensland Department of Justice and Attorney-General, NSW Office of Fair Trading, Consumer Affairs Victoria, Good Shepherd Youth & Family Service, Consumer Action Law Centre, Griffith University, RMIT University, Australian Financial Counselling and Credit Reform Association, CHOICE (Australian Consumers' Association) and Foresters ANA Mutual Society has been formed to monitor and report publicly the pilot.
In launching the pilot in May 2008, the Advisory Group made the following statement on the pilot.
The Advisory Group supports the NAB Small Loans Pilot and its intentions to expose the costs of fringe lending; to draw attention to the high interest rates and charges prevalent with fringe credit; and to increase product diversity in this market.
While we support the NAB Small Loans Pilot and its intentions, our participation in the Advisory Group does not represent endorsement of fringe lending, Mobile Finance (trading as Money Fast) or Mobile Finance's loan product. Our role as an Advisory Group is to monitor the pilot and its performance and to report quarterly with our views and findings for the duration of the Pilot.
More information
About Mobile Finance
Mobile Finance Pty Ltd (ACN 123 592 487), trading as Money Fast offers personal loans and mortgage broking services and has been in operation since January 2007.
The company has a vision to become a leading alternative finance company in Australia and to be recognised as a professional and fair provider of financial services at affordable prices.
Rather than charging high interest rates, the directors of Mobile Finance, have based their business model on offering loans at low industry rates and growing a sustainable commercial operation through volume and high customer demand.
Company directors are Justin Hatfield, Chief Executive Officer and Anthony Novak, Chief Operations Officer. See biographies below.
More information about the company is available at www.moneyfast.com.au
Executive Biographies
Justin Hatfield, Chief Executive Officer
Justin has joined Mobile Finance from Industrial Identity Systems (IN ID), where he held the position of Managing Director. IN ID is one of the worlds leading suppliers of real time retail traffic and sales data. IN ID provides real time data to Westfield Pty Ltd, the City of Melbourne and the Commonwealth Games.
Prior to IN ID Justin was the Sales Director at Argus Solutions one of the worlds foremost Biometric Solution providers. A position he held for 4 years prior to and post ASX listing.
Justin joined Argus from Mirapoint Incorporated, a California-based Internet messaging company, where he was the Asia Pacific Sales Manager. Prior to that, Justin was General Manager of Sales for FASTWIRE, the only accredited Cisco Professional Services provider in the Asia Pacific region. Earlier, Justin was employed for ten years at Banque Nationale de Paris where he was responsible for Mainframe Operations, technical mergers and finally the network for over 1,000 trading and support staff.
Anthony Novak, Chief Operations Officer
Anthony has joined Mobile Finance from Industrial Identity Systems where he held the position of Sales Director.
Prior to this role Anthony was Co-Director and General Manager of Renovation Central: a start-up business involved in the manufacture and retail of high-end contemporary furniture.
Earlier, Anthony spent over 10 years in senior roles in the Funds Management and Financial Planning Industries. Firstly with BT Funds Management as National Brokerage Manager gaining high level expertise in the development and administration of client and adviser management systems and databases.
Following that he was a Business Development Manager for Count Financial Group, one of Australia's largest financial planning institutions. Working with small, medium and large Accountancy practices to improve their efficiency and profitability via a structured business planning process incorporating marketing and organisational initiatives.
*About the interest rate:
The NAB Small Loans Pilot has been designed to operate with a "break even" interest rate where interest income effectively covers the costs of providing the loans.
This rate can only be determined by forecasting the cash inflows and outflows for a portfolio of loans. The rate is sensitive to the number of smaller loans in a portfolio.
When quoting interest rates, comparison rates are required to be quoted based on certain loan values and terms. 28.25% p.a. is the comparison rate based on a loan of $2,500 over a term of 2 years with monthly repayments. Comparison rates take into account all interest and other fees and charges (other than government fees, charges or duties) payable during the life of the loan which are known at the date the comparison rate is calculated. WARNING: this comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
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