New research reveals: No interest loans change lives

Good Shepherd Microfinance’s No Interest Loan Scheme (NILS) reaches Australia’s most vulnerable people and directly improves their lives, according to new research.
The independent evaluation by the Centre for Social Impact found that the NILS program diverts clients away from predatory lenders such as fringe credit providers and goods rental services.

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CEO of Good Shepherd Microfinance, Adam Mooney, said the research showed that NILS created positive changes in clients’ financial capabilities.

“More than three million people in Australia don’t have access to a moderate amount of credit, a basic transaction account or general insurance,” he said.

“The NILS program provides an alternative for people on low incomes enabling them to realise their own economic wellbeing, as they define it themselves, through appropriate and affordable financial services.”

The NILS program offers no interest loans of up to $1,200 to people on low incomes for the purchase of essential household goods and services. Operating for 33 years, the program has provided loans to more than 125,000 people on low incomes, with repayment rates consistently above 95%.

The report, “Life Changing Loans at No Interest: An Outcomes Evaluation of Good Shepherd Microfinance’s No Interest Loan Scheme”, found that:

  • 82% of clients experienced a net improvement in economic outcomes, such as savings in food and utilities expenses as well as greater financial independence and ability to absorb one off unexpected shocks.
  • 74% of clients experienced a net improvement in social and health outcomes. This includes improvements in confidence, self-esteem, personal relationships and participation in society.
  • 47% of clients improved their financial capabilities including budgeting, saving money, maintaining an emergency savings fund and comparison shopping.
  • Four out of five clients who had previously used fringe credit stopped after accessing a NILS loan. The research also found that for each dollar invested, $1.59 of social and economic value is returned overall.

“This means that clients are less likely to need expensive government and other services such as emergency relief, housing, mental health, corrections, income support and more likely to move towards income generation, self sufficiency and broader economic contribution,” said Mr Mooney.

Good Shepherd Microfinance’s NILS program is offered through a highly valued partnership with the National Australia Bank (NAB), the Australian and state governments and 257 connected local community organisations in 609 locations.

NAB’s annual Measuring Financial Exclusion in Australia report found that of the three million people financially excluded in Australia, 35% are young people aged 18 to 24 and more than 40% are in employment.
NAB Group Executive, Personal Banking, Gavin Slater said that greater transparency of the fringe lending sector is required in order to fully understand why some people aren’t accessing mainstream credit products.

“There are many people in our community living pay cheque to pay cheque, without a safety net to help them manage unexpected expenses. When they’re faced with emergencies, such as the car they rely on to get to work breaking down, they do not have any means to repair or replace it.”

“Those excluded from mainstream credit are often forced to turn to fringe lenders and can find it difficult to manage basic payments, getting caught in a cycle of debt,” he said.
Both organisations have called on the Australian Government’s Financial System Inquiry to more fully understand the fringe lending sector and opportunities for industry, community and government to work together to substantially extend safe, fair and affordable alternatives.