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