Thousands to avail of low-cost loans under radical new scheme
Tens of thousands of families are set to avail of "hassle-free loans" of up to €1,000 as the Government moves to break the dependence on moneylenders.
The plan, being spearheaded by the Department of Social Protection, will see loans being approved within an hour with just minor credit checks.
Some 40,000 loans are to be rolled out per annum by the country's post offices and credit unions in a major effort to provide an alternative to moneylenders.
Interest rates of up to 12pc will be applied on the loans - compared to rates of up to 188pc applied by private firms.
A pilot scheme, which could be in place by September, is specifically aimed at low to middle-income earners who may have been refused loans by the banks.
It is envisaged that repayments would be virtually guaranteed because people would be required to have the money for repayments taken from their social welfare under the existing Household Budget Scheme.
This is a scheme administered by the post offices which involves deductions being taken from social welfare payments to pay for things such as rent bills.
Government sources say there will be a significant involvement by the Money Advice And Budgeting Service (MABS) and St Vincent de Paul to ensure people don't seek loans they cannot afford.
"We need to take the moneylender out of the loop and give low- to middle-income families the chance to avail of hassle-free loans," said a source.
The Personal Microcredit Scheme is being led by Minister for State at the Department of Social Protection Kevin Humphreys in conjunction with the Department of Finance and other interest groups.
Oversight of the scheme will be provided by the Social Finance Foundation, which collaborates with the banks and Government to promote responsible lending.
The Social Finance Foundation was set up with €72m in funding from the banks with the aim of providing lending to financially excluded groups.
Chief Executive of the foundation Brendan Whelan said microloans would challenge the operations of moneylenders. "The customers of the licensed moneylenders are those who can least afford to pay interest rates of over 150pc," he said.
"The scheme will be designed to meet the needs of those who most need it, in terms of simplicity, convenience, speed and affordability.
"The initiative should be seen in the context of addressing financial exclusion, so that the benefits of being within the financial system are available to all citizens," he added.
The Department of Social Protection envisages that the average loan sought under the personal micro credit scheme will be €500. The scheme is seen as essential in assisting in the revival of the post office and credit union network.
It is feared that number of people using money lenders could rise to as high as 400,000 which has caused deep concern within Coalition circles.
The Irish League of Credit Unions (ILCU) said micro-loans will come as a boost to the credit union sector. The move by the Government comes after the Irish Independent revealed that thousands of people with loans from moneylenders could be in line to have their borrowings wiped out and to get compensation, after a case was won by a Donegal couple against a major moneylender.