Personal Micro Credit Scheme going nationwide – Varadkar

Credit Unions urged to sign up to small-loan scheme as over 50% had previously used a money-lender

Minister for Social Protection Leo Varadkar has confirmed that a scheme designed to offer low-cost loans to low-income families is now being made available to credit unions right across Ireland.

The It Makes Sense loan has been available in 30 credit unions since last November on a pilot basis. It’s designed to make short-term credit available on a low-cost basis to the people who need it most, as an alternative to high-cost legal and illegal money-lenders.

To date more than 1,200 loans have been drawn down with an overall value of over €720,000. The average individual loan is €500. Of borrowers surveyed, who received loans under the pilot scheme, more than half had previously used a money-lender, and 22% were thinking about using a money-lender before they availed of the loan.

The scheme is now being offered to credit unions nationally. A further 50 credit unions have already expressed interest and 18 are in the process of signing up. Minister Varadkar has urged remaining credit unions to sign up and make the low-cost loans available to their members.

Speaking at the launch event at Meath Street Credit Union, which took part in the pilot scheme, Minister Varadkar said: “This small loans scheme represents real practical help for families and individuals struggling on low incomes. 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 legal and sometimes illegal money lenders.

“This new scheme will ensure access to small loans at reasonable interest rates from the credit union, with the option for social welfare recipients who are paid by cash to repay the money through my Department’s Household Budgeting Scheme. Since summer 2016, social welfare recipients who receive payment electronically into an account in a financial institution can now also avail of the scheme, provided the loan repayments are made by direct debit or by standing order.

“The pilot scheme has been hugely successful and I’m delighted that we can now offer it to all credit unions across Ireland. I strongly urge all credit unions to sign up and make the loan scheme available to their members. There is clearly a demand for this type of scheme and the pilot shows it is providing a real alternative to high-cost moneylenders by offering a convenient, low-cost personal loan scheme. It also gives borrowers an opportunity to improve their creditworthiness by showing a commitment to repay a loan.”

This extension of the scheme fulfils the Programme for Partnership Government commitment. This is supported by the Irish League of Credit Unions and the Credit Union Development Association and individual credit unions around the country are being encouraged to participate.

The Irish League of Credit Unions (ILCU), a member of the Implementation Group, is currently engaged in a project to extend the scheme’s coverage nationwide. According to Ed Farrell, CEO “ ILCU is delighted to support the roll out of this initiative across the country. Providing access to credit for those who need it most is at the very heart of the work of credit unions. We are all very aware of the penal interest rates charged by moneylenders across the country. This scheme can play a vital role in helping people to avoid getting trapped in a cycle of high interest debt”.

Offering encouragement to other Credit Unions to take part in the scheme James Bowden, Chair of Meath Street Credit Union said “ We were enthusiastic participants in the pilot phase and see the project as a major success, both in terms of providing low cost modest loans to the most vulnerable in our community and also engaging with them on how best to plan and budget for their family expenses. The combined efforts of all involved directly confronts the issue of moneylending in our community.

Findings from the pilot scheme

(i) Borrowers:
Based on the outcome of 138 telephone interviews and views expressed by attendees at three focus groups.
o 52% had previously used moneylenders;
o 22% had considered going to a moneylender before taking out their PMC loan;
o More than 90% of borrowers rated the overall credit union service as ‘good’ or ‘very good’ and would like to borrow from a credit union again;
o The scheme received an ‘off the scale’ Net Promoter Score of 82% – this measurement represents the propensity to recommend to family and friends;
o 47% stated that the loan scheme has had a positive impact on how they manage money; and
o All focus group participants scored their experience as 9 out of 10 (or greater) in terms of the positive impact on their lives.

(ii) Credit Unions:
The findings based on responses from 17 of the 30 pilot credit union sites to a questionnaire were that:
• the vast majority of credit unions who engaged in the pilot did so from a ‘social good’ perspective;
• each credit union demonstrated commitment to the principles and purpose behind the initiative and viewed the initiative as having a very positive impact on borrowers; and
• PMC was affirmed as part of the credit union movement’s social ethos.

(iii) Project stakeholders:
Based on interviews conducted with each stakeholder organisation, the consistent responses received were that:
o PMC offers normal credit and financial service opportunities to a cohort of people otherwise excluded from accessing mainstream credit;
o the scheme helps credit unions to deliver on their core purpose; and
o stakeholders are, as a consequence of the pilot, committed to rolling out PMC on a nationwide basis and to introducing a similar credit offering to a wider audience than social welfare recipients with access to the Household Budgeting facility.

Further Information

A Personal Micro Credit Scheme providing for small scale loans by Credit Unions to borrowers who have difficulty accessing low cost credit has been piloted in 30 credit unions.

The loans under the scheme range from €100 to a maximum of €2,000, and have a maximum interest rate of 12% per annum. Over 1,200 loans have been drawn down under the Scheme to date with an overall value of over €720,000. The average individual loan value drawn down is €500. The focus of the pilot scheme was social welfare recipients who availed of the loans from their Credit Union and were facilitated, with their consent, in the repayment of such loans through the Household Budgeting facility, operated by An Post. The deductions from their weekly social welfare payments are then transmitted on to the relevant Credit Union. Incremental progress is being made towards extending the geographical coverage of the loan scheme through efforts to recruit credit unions to participate in the scheme. Engagement is continuing with the Credit Union representative bodies and individual credit unions to encourage wider participation. To date, on foot of this engagement, expressions of interest have been received from over 50 Credit Unions, of which 18 are in the process of signing up to participate in the scheme.

While the pilot scheme was targeted towards social welfare customers with access to the Household Budgeting facility, the scheme has recently been extended to include all social welfare recipients, provided the loan repayments are made by direct debit or standing order.

Efforts are also underway to examine ways the Personal Micro Credit scheme can be made available to low-income individuals and families. The Implementation Group is working with the relevant stakeholders to find solutions within prudential lending guidelines.

The scheme is the result of extensive and constructive engagement between a range of stakeholders including the Citizens Information Board, MABS, the Social Finance Foundation, the Department of Social Protection, Department of Finance, Central Bank of Ireland, Irish League of Credit Unions, Credit Unions Development Association, Credit Union Managers Association, An Post, and non – governmental organisations represented by St Vincent de Paul, to progress the development of a Personal Micro Credit Scheme.

Date: 26. 7. 2016