FINANCIAL PRODUCT

Product: Step Up loans. Offerer: A combination of the Government, BNZ, The Salvation Army and the charity Good Shepherd.

Offer dates: Available now in certain parts of Auckland.

How they work: Step Up loans are low interest loans of up to $5000 which can be repaid over three years. A pilot distributing the loans began this week in Auckland’s poorer parts. BNZ is providing the $10 million loan money with borrowers sourced by The Salvation Army. The Government is chipping in around $200,000 a year over four years towards the Sallies’ costs. The loans will be made to people with low incomes, who might otherwise fall prey to loan sharks or high-interest lenders. The interest rate is 6.99 per cent but the scheme also involves no interest loans (known as NILs) of up to $1000. The Sallies have been trained by the charity Good Shepherd, which is involved with a similar, successful scheme operating in Australia for around 10 years.

What we like: Each dollar BNZ is putting up should be lent again and again. That could potentially help many people avoid high interest debt and improve their lives. The Australian scheme now has loans offered at more than 650 locations on a not-for-profit basis.

What we don’t like: Some of the money lent out won’t get repaid. Already online chatrooms have been scoffing at how much BNZ will get back. But the Australian experience indicates the scheme won’t be viewed as a source of free money, and the majority will repay.

Conclusion: Good on BNZ. This is real money. It won’t get back every cent it lends, but hopefully the pilot will turn into a successful national roll-out of the scheme.