Our track record of caring for the most vulnerable members of our communities, whether they be people with intellectual disabilities, people in care, asylum seekers or people out of home (to name just a few), has been little short of disgraceful in recent times.
However, it does not end there. In a country with a population of 4.58 million, 360,000 people last year had to resort to legal moneylenders. That statistic does not occasion much shock or urgent calls for reform. There are no mass protests.
Somehow we think it is acceptable and inevitable that those who are most likely to need to borrow relatively small sums just to meet everyday contingencies like illness or bereavement should also pay the highest rates of interest.
Provident, the biggest legal moneylender in Ireland, is completely transparent about its exorbitant rates. If you borrow €500 over 52 weeks it will cost €780 – that is 157.3 per cent APR.
And, as Fiona Reddan in The Irish Times pointed out in an extensive piece this week on licensed moneylenders, Provident is not even the lender with the highest rates.
For the very poorest a combination of personal fragilities and the impossibility of securing credit anywhere else makes legal moneylenders the only option.
Mind you, given the impact of the recession many people who would never have before gone near legal moneylenders may find themselves with an agent calling around once a week looking for repayment of a loan.
Credit unions were set up to provide small loans at reasonable rates, but one of the recession’s byproducts is that they have had little choice but to move more towards lending to the middle classes.
Affordable credit
MABS, the Money Advice and Budgeting Service, began more than 20 years ago in response to illegal moneylenders. The problem has lessened, but it still does not mean that the poor can access affordable credit.
Michael Culloty of MABS’s national development office has been pushing for a micro-credit scheme that would provide a credible alternative to legal moneylenders. Such schemes exist elsewhere. For example, for three decades Australians on low incomes have been able to access no-interest and low-interest loans through Good Shepherd Microfinance.
It works with the National Australian Bank and the Australian department of social services. Although initially the idea of giving loans to people no bank would touch was scoffed at, there has been a consistent repayment rate of over 95 per cent.
Nearly three-quarters of their clients experienced improved social and health outcomes, including reductions in stress and anxiety, while just under half improved their financial capabilities, such as following a budget, paying bills on time, and saving money.
In a recent report Good Shepherd Microfinance gave a profile of a typical client. It calls her Leanne, a single woman in her 50s, who has one daughter with three children. Her daughter has addiction problems and her children are being taken into care. Leanne wants to take them, but cannot afford beds and other expenses, particularly since she will have to quit her low-paid supermarket job to look after the youngest full-time because she is not yet in school.
When Leanne goes to Good Shepherd Microfinance it discovers that there are benefits that she could be claiming, and helps her with the loan. It saves the government a fortune to have the children in the hands of a relative, and no doubt it is far better for the children too.
There are different layers of need. If people are borrowing to meet basic requirements of life, micro-credit will not solve their difficulties – they need an adequate income. However, for people facing temporary but difficult challenges it can not only prevent a slide into further distress but it can also begin a process that improves lives.
The Irish credit unions are an obvious organisation that could undertake this work, but under a different regulatory framework than their other loans. MABS and the Citizens Information Board have proposed that credit unions would do all the necessarily rigorous loan processing and would take 50 per cent of any bad debts which would arise.
Financial services
The remaining 50 per cent would come from a National Personal Micro-Credit Guarantee Fund which would be funded by the other players in the financial services industry.
Provident was fined €105,000 by the Central Bank recently, and Ulster Bank had to pay €3.5 million for leaving customers without access to core banking facilities for weeks. That would make an excellent start to a micro-credit fund.
The level of lending by individual credit unions should be ringfenced to a percentage of their lending and have a different specific regulatory framework. Support would be provided to borrowers where required, for example, through MABS.
A micro-credit scheme could address the immediate needs of a cohort of very vulnerable people. It could improve both their quality of life and the wellbeing of their families and communities.
There is a moral and political imperative to implement this scheme.