Creating Credit, Not Debt Towards a personal microloan scheme in Ireland. Georges Gloukoviezoff UCD Geary Institute 21st May 2015

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1 Creating Credit, Not Debt Towards a personal microloan scheme in Ireland Georges Gloukoviezoff UCD Geary Institute 21st May 2015

2 The study and its methodology Funded by the Central Bank of Ireland and the Social Finance Foundation Methodology Literature review 17 in-depth interviews with potential borrowers 9 good practices case studies 10 interviews with Irish stakeholders

3 Standalone Lenders Lenders linked to a mainstream financial institution Public funds The Discretionary Social Fund ( ) The Growth Fund ( )

4 The case for a personal microloan scheme in Ireland

5 Everybody can access credit in Ireland Poverty is still at a very high level Inadequacy of income is a growing issue Going into debt for ordinary living expenses 9% 17% Unable to afford unexpected expense 21% 54% Unable to save 56% 65% People in need of affordable loans 360,000 people borrow from moneylenders CSO found that 650,000 adults live in a credit constraint household CIB estimates the demand for microloans to be 293,000

6 People in financial difficulties cannot afford another loan Schemes Default rate Scotcash 3.97% CUOK <1.3% No Interest Loans Scheme (NILS) 4% MicroBank 1.57% Parcours Confiance 6% StepUP Loans 1% Fonds de Cohésion Sociale 6.46% Growth Fund 4.5%

7 Borrowing will harm people in financial difficulties Impact evaluations show that microloans can: Reduce borrowing from moneylenders Save a significant amount on high cost borrowing Help getting in employment Improve financial situation Improve money management skills Improve self-confidence Large majority of borrowers experience positive impact 15 to 20% experience transformative positive impact 5% experience negative impact

8 It is too complicated & it will never work Client focus Money management techniques cash, weekly basis, portfolio of lenders Complicated financial and emotional situations fast, simple, flexible, real needs, non-judgmental Coherent organisational strategy Learning process Positive outcomes for lenders Positive outcomes for society

9 Insights from other Jurisdictions A roadmap for Ireland?

10 Key guidelines The scheme s aim or aims has to be clearly defined The borrowers needs have to be put at the heart of the scheme s design The personal microloan scheme should be considered as a learning process Political leadership is absolutely necessary

11 The Personal Microloan Scheme Lender with the necessary infrastructure and the willingness The Credit Union Movement Partnerships to improve the outreach of the scheme and support borrowers when needed An Post, MABS, Saint Vincent de Paul, etc. Fund to guarantee 50% of the losses and to provide capital and revenue for the stakeholders Financial Inclusion Fund Independent body to manage the Fund and the Scheme The Social Finance Foundation

12 The personal microloans Amount from 50 to 2,000 APR between 12.68% to 26.8% No profile eligibility criteria would apply except: the ability to repay the microloan and being excluded from mainstream or credit union loans People in arrears or anticipating to be in arrears would be eligible. All purposes would be eligible including debts MABS support should be offered systematically but strongly advised for debts over 1,000

13 Key features Costs and missed payments No cost except the interest rate No fees in case of missed payment When default, court procedure would only apply when clear dishonnest behaviour has been established Repayments weekly, fortnightly or monthly basis possible Cash, direct debit or direct deduction Direct deduction - only if borrower explicitly requests it - only if protective procedures are in place (possibility of having the repayment paid back in case of hardship).

14 Legal implications Credit Union Act (1997) Interest rate cap Consumer Credit Act (1995) (loans under 200), Consumer Credit Agreement Regulation (2010) and Consumer Protection Code (2012) Assessing affordability Access to the Financial Services Ombudsman

15 Application process *Household Budget Scheme

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