More than small change

Many of us will have experienced the deep frustration and inconvenience caused by the breakdown of essential household items. However, faced with the urgent need to replace essential pieces such as a refrigerator, washing machine, hot water service or gas heater, the majority of Australians can obtain credit through mainstream financial institutions.

However, this is the not the case for more than two million other Australians living in households that are struggling to cover basic costs and demands on a low income. Low-income households spend their weekly income on the necessities of life, including food, housing, transport, education costs and medical bills, with very little left for leisure, unexpected occurrences or savings. Microcredit is often the only way they can meet their need for basic household assets.

The United Nations has designated 2005 as the International Year of Microcredit. This emphasises the importance of microfinance as an integral part of the world’s collective effort to meet the millennium development goals.

Microcredit refers to small amounts of money made available for loans, often without collateral, to people unable to access mainstream financial institutions. The Grameen Bank, started by Dr Muhammad Yunus in Bangladesh three decades ago, is the most widely known example of microcredit. Initially it provided loans to assist poor people living in Bangladesh to increase their income and earning capacities with small-enterprise development. This model has been replicated in the global South, among disadvantaged communities in Central America, Africa and Asia.

Microfinance, on the other hand, includes savings, insurance, transfer service and other financial products offered to disadvantaged people and those who are financially excluded. Microfinance focuses on three dimensions of poverty alleviation: enterprise development; consumption and asset development; and insurance and income protection.

The more widely known microcredit programs in the global South are for enterprise development, while in Australia, like most countries in the global North, microcredit is largely provided for consumption and asset development.

The Good Shepherd Sisters in Abbotsford, Victoria, started Australia’s first and largest microcredit scheme 25 years ago. The No Interest Loans Scheme (NILS) enabled young women to move into independent living. NILS now offers people on low incomes the opportunity to access credit for an essential household item without any fees, charges or interest payments. People in receipt of a health-care card or a pension card, who are in a stable residence, are eligible to access a NILS loan, which is generally between $800–$1000 and repaid over a period of 18–24 months. Good Shepherd has now lent more than $1 million to low-income families, and across Australia more than $3 million is lent each year.

Good Shepherd Youth and Family Service launched NILS: Small Loans, Big Changes at the Microcredit: More than Just Small Change conference held in Melbourne in June. This research explores the immediate and longer-term benefits for an individual or family’s access to a NILS loan. The research was undertaken with financial assistance from the Ian Potter Foundation. It records the experiences and outcomes for individuals and families in their own words and seeks their views on the worth of the NILS program.

The research found that individuals and families struggling to make ends meet on a low income, value NILS loans because they offer real solutions to essential needs, and restore a sense of hope that someone cares. This helps develop self-esteem. The loans also help improve people’s daily lives by easing life’s physical demands and reducing stress levels in the home; this helps to improve interpersonal relationships and build stronger links with other family members, friends and neighbours. Over time, these stronger primary connections may assist people to be more active in the local community, including participation in local events, groups and sports clubs. Greater social participation improves self-confidence and encourages a desire to learn through participation in courses and to contribute through being a volunteer. In time people’s aspirations are lifted and this can facilitate their access to training and employment opportunities. Addressing people’s need for essential items or services through accessing a NILS loan also raises awareness about the needs of others; NILS recipients are strong advocates for no-interest loans to be more widely available for people managing on low incomes.

The findings in this research support the need for a multifaceted strategy to achieve genuine financial inclusion and greater social and economic participation for all Australians. Microcredit can assist in achieving the millennium development goals; however, microcredit alone will not achieve the eradication of poverty. There are many issues that need to be addressed, such as financial and social exclusion, unemployment, low income, lack of opportunities, high cost of living and lack of education.

Perhaps one of the drawbacks of microcredit is that it can be seen as a panacea for the community’s financial, economic and social ills. This is not the case. It might improve the situation of people on low incomes. However, as long as unjust structures in the economy and society remain, some people will be left vulnerable to poverty.

The report NILS: Small Loans, Big Changes and the proceedings of the conference Microcredit: More than Just Small Change are available from the Good Shepherd Social Policy Research Unit, 117 Johnston Street, Collingwood, VIC 3066, or by phoning Marilyn Webster on (03) 9419 5477.             
Janet Palafox is a Loreto sister who worked as a researcher for the NILS report.



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