Updated: 14.10pm
A PILOT MICROFINANCE loan scheme to tackle moneylenders was announced by Social Protection Minister Leo Varadkar today.
The scheme is designed to allow credit unions provide small affordable loans to individuals and families who would otherwise rely on moneylenders or unlicensed loan sharks.
The loans of up to €2000 can be used for things like Christmas presents, or back-to-school expenses.
A pilot scheme in 30 credit unions saw 1,300 people accessing the loans, the average amount of which was under €500.
Overall, 720,000 was loaned out, with a default rate of just 4%.
A further 50 credit unions have already expressed interest, and 18 are in the process of signing up.
Fix the car
Today at Meath Street Credit Union in Dublin 8, Varadkar said the scheme was an enormous success and would really help those on social welfare, “whether it’s a pensioner that needs to fix the roof, or a jobseeker who needs to fix the car”, adding:
We think it could allow up to a million people to access low-interest low-cost loans in their locality, which I think will be a real support for people.
A spokesman for Meath Street CU said the scheme had also doubled the rate of new members.
The personal microcredit scheme is being run by the Social Finance Foundation (SFF), funded by the Department of Social Protection.
Up to 400,000 people are estimated to use moneylenders in Ireland, who can legally charge interest rates of up to 188%.
Unlicensed loan sharks can charge interest many times over that amount – and sometimes threaten force.
Varadkar added:
Many of the participants may struggle to get credit elsewhere, and may not have a bank account or savings.So when the unexpected bill arrives for home or car repairs, a new fridge or a family occasion, some turn to money lenders and loan sharks.This new scheme will ensure access to small loans at reasonable interest from the credit union, with the option of repaying the money through my department’s household budgeting service.
Threaten
The new scheme involves hassle-free loans with a fast turnaround of around a day, a fraction of the time it normally takes to get a credit union loan.
Brendan Whelan of the Social Finance Foundation said the scheme had a 95% satisfaction rating among customers.
Really what we were trying to do is give people the opportunity to get such loans at a much lower interest rate than they would currently get from the money lenders.
“And you’re talking about a difference in interest rates of say, a credit union, who might be charging maybe up to 10%, and a money-lending organisation that could be charging an interest rate closer to 200% per annum.”
He said almost nine in 10 borrowers were making weekly repayments of €20 or less.
“This is a clear example of using social finance to benefit the individuals and families who can least afford to pay interest rates to a money lending organisation,” Whelan added.
The credit unions are uniquely positioned to provide the alternative to such hugely expensive loans.
The pilot Personal Microcredit scheme was launched last year following publication of a joint SFF-Central Bank report on such schemes in other countries in April 2015.
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