Edi Spina was struggling under the weight of her Afterpay debt, having turned to the buy now, pay later product to buy groceries and cover basic expenses.
“Before I knew it, there was this massive bill and I never caught up,” says Spina, 60, who had moved into social housing after a traumatic period of housing insecurity.
Then her washing machine packed it in. Without the money to replace it, she sought help at a local Salvation Army branch. They told her about a scheme through which she could buy a new machine and pay the money back over 18 months at a rate that was manageable for her pension.
It wasn’t rent-to-buy – or BNPL, or a payday lender – and there were no fees. It was a genuine zero-interest loan from a microfinance program that has been run by a network of charities for more than 40 years.
The national no-interest loans (NILs) program was started by Good Shepherd in 1981, when the Catholic nuns who founded the charity first loaned $20,000 of their own money to members of the community. National Australia Bank jumped on board in 2003, and state and federal governments agreed to fund the background running costs, with community organisations helping to deliver the loans.
The loans cannot be used for cash or debts and the money goes directly to the supplier of a product or service. For most items, including mattresses, white goods and dental and medical bills, the borrowing limit is $2,000. Bond loans can go up to $3,000; vehicles and motorised mobility aids up to $5,000.
More than 350,000 of these loans have been given to low-income Australians since 2003. Over the past year, 170 not-for-profits have issued more than 36,000 loans worth nearly $60m.
And the need is rising: Good Shepherd reports a 16% increase in loans from September to February compared with the same time the previous year.
Dare Kavanagh, Good Shepherd’s national manager for the NILs program, said it was founded on the premise of removing the small financial barriers that stood in the way of “things working out” for people on low incomes, particularly those who have been through a difficult life event.
“It’s most effective when it’s part of a bigger picture for someone,” Kavanagh says. “For example, a case manager is helping someone to get a job, or getting them re-established after a crisis like a natural disaster. Or they may have had to establish a new home after a relationship breakdown.”
Jodie Rowe, a financial counsellor in Darwin, says she has worked with whole communities who have started using NILs as an alternative to BNPL, rent-to-buy or predatory lenders.
“It can be a way of accessing, say, car repairs – that’s a really big one. Sometimes the mechanic wants their money upfront,” Rowe says. She says it’s an alternative for credit contract that have high fees and can start a “debt spiral”.
“I’ve definitely seen, over the years, people’s situation improve because they’re using NILs instead of payday lenders,” Rowe says. “I had a client say to me it was life-changing for her, and that really resonated.”
NILs have the full-throated support of Financial Counselling Australia which, along with Good Shepherd and others, has been lobbying for tighter regulation of BNPL schemes in Australia.
Good Shepherd saw BNPL-related debt among its own clients increase eightfold between 2017 and 2021. In a report released in November, the charity found that “contrary to the characterisation of BNPL as a discretionary spending tool”, it was instead a “highly gendered phenomenon tied to women’s economic insecurity”, with people on low incomes using BNPL for essentials such as children’s clothing, baby products and groceries.
“Concerningly, some of our practitioners report that women are accumulating unmanageable BNPL debts after fleeing family violence and needing money for basics,” the report said.
Good Shepherd expanded the zero-interest loan program last August, increasing the amounts available, extending the repayment period and opening it up to anyone earning less than $70,000 annually before tax ($100,000 for someone with a partner or children) to better assist low-income workers in the cost-of-living crisis.
The majority of NILs recipients are women and 26% overall are First Nations people.
At any point, about 12% of NILs clients are “non-paying”, Kavanagh says. When they hit a crunch, however, clients are encouraged to get in contact and work out a plan, even if it’s just a pause in repayments or a reduction to $5 a fortnight.
“Trust, dignity and respect are the absolute bedrock of the NILs program,” Kavanagh says.
Spina is now on her third no-interest loan. After she paid off the washing machine, she got two sets of prescription glasses, and she has just received a new fridge.
“Without the opportunity of being eligible for the loan, I don’t know what else I would have done,” she says. “You almost can’t wait to pay it off because you know you’re going to need it again.”
