CDFI Pilot Extended

The Federal Government is to provide an additional $1.2 million to extend a pilot program that gives vulnerable Australians access to small loans and financial literacy training.

The Minister for Community Services, Julie Collins, says the Community Development Financial Institutions initiative had been a success over its 15 month trial.

“This initiative fills a gap for vulnerable Australians who are able to repay a loan but are excluded from the financial mainstream because of low incomes or poor credit history.”

In March 2010, the Federal Government provided $6.03 million of seed funding to five organisations to carry out a Community Development Financial Institutions pilot.

These organisations raised a further $3 million for the loan capital from philanthropic and private investment.

“Community Development Financial Institutions act as the ‘middle man’, as it were. They work hard to link disadvantaged Australians with financial services and products,” Collins said.

Collins said an evaluation report of the pilot scheme found that most of the personal loans were in the $1,000–$3,000 range for terms of 12 months to two years.

“These loans were used to pay for white-goods, cars, car repairs, medical expenses, household bills, develop micro-enterprises, and pay off debt, thereby creating a positive credit history,” Collins said.

“During the 15-month pilot period, $2,827,628 was loaned to low-income Australians. This comprised 1,053 personal loans and 122 microenterprise loans.

“At the end of the pilot, the majority of people were on track to repay their loans. Further, it was clear from feedback that people’s confidence and self-esteem grew from improving their credit worthiness and successfully making loan repayments.

“Almost 30 per cent of borrowers identified as Aboriginal or Torres Strait Islander. A third more women than men took out personal loans.”

The banks that have supported the pilot with loan capital, including the National Australia Bank, Westpac and Bendigo Bank.

The additional funding will be shared by four organisations:

• Foresters Community Finance (Qld);
• Community Sector Banking (NSW, with consortium partners operating in WA, Qld, Vic, SA, Tas);
• Many Rivers Microfinance (NSW and WA);
• Fair Loans Foundation (nationwide coverage through the web).

“These organisations involved in the scheme have shown a commitment to supporting vulnerable Australians,” Collins said.

“This initiative is not just about buying a new fridge or a new car.

“It’s also about giving thousands of Australians the chance to achieve their financial goals and learn essential financial skills, which has a positive impact now and into the future.”