The Hon Bill Shorten MP
Minister for Financial Services and Superannuation
The Minister for Community Services, Julie Collins, has today announced an additional $1.2 million to extend an initiative that gives vulnerable Australians access to small loans and financial literacy training.
Ms Collins said the Community Development Financial Institutions initiative had been a success over its 15 month trial.
“Ensuring Australians have appropriate options for affordable access to credit, alongside credit reform, is an important strategy for addressing short term, high cost payday loans,” Ms Collins said.
“This initiative fills a gap for vulnerable Australians who are able to repay a loan but are excluded from the financial mainstream because of low incomes or poor credit history.”
In March, 2010, the Australian Government provided $6.03 million of seed funding to five organisations to carry out a Community Development Financial Institutions pilot.
These organisations raised a further $3 million for the loan capital from philanthropic and private investment.
“Community Development Financial Institutions act as the ‘middle man’, as it were. They work hard to link disadvantaged Australians with financial services and products,” Ms Collins said.
The Minister for Financial Services and Superannuation, Bill Shorten, said the loan providers are alternatives to pay day loans.
“They assist disadvantaged Australians with access to safe and affordable credit, credit that reflects their means and their ability to repay, and to financial literacy training through budgeting advice or money mentoring,” Mr Shorten said.
“This investment in providing alternative credit providers builds on this Government’s consumer protection and credit reforms. We need a holistic approach to building financial literacy and this is one step in building credit options for those with the greatest need.”
Ms Collins said an evaluation report of the pilot scheme found that most of the personal loans were in the $1,000–$3,000 range for terms of 12 months to two years.
“These loans were used to pay for whitegoods, cars, car repairs, medical expenses, household bills, develop microenterprises, and pay off debt, thereby creating a positive credit history,” Ms Collins said.
“During the 15-month pilot period, $2,827,628 was loaned to low-income Australians. This comprised 1,053 personal loans and 122 microenterprise loans.
“At the end of the pilot, the majority of people were on track to repay their loans. Further, it was clear from feedback that people’s confidence and self-esteem grew from improving their credit worthiness and successfully making loan repayments.
“This highlights the positive difference that access to even a small amount of affordable credit can make in the life of someone who is otherwise excluded from the financial mainstream.
“I am heartened by the evaluation report’s finding that the scheme successfully targeted individuals who were otherwise financially excluded.
“Almost 30 per cent of borrowers identified as Aboriginal or Torres Strait Islander. A third more women than men took out personal loans.”
Mr Shorten said two of the organisations, Community Sector Banking and Foresters Community Finance, reported that a third of their clients had a disability.
“And almost all borrowers reported incomes of below $50,000 per annum,” Mr Shorten said.
Ms Collins thanked those banks that have supported the pilot with loan capital, including the National Australia Bank, Westpac and Bendigo Bank.
The additional funding will be shared by four organisations:
“These organisations involved in the scheme have shown a commitment to supporting vulnerable Australians,” Ms Collins said.
“This initiative is not just about buying a new fridge or a new car.
“It’s also about giving thousands of Australians the chance to achieve their financial goals and learn essential financial skills, which has a positive impact now and into the future.”
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