Kiwibank is approving a greater proportion of small business loans thanks to a project to remove barriers to Māori entrepreneurs securing capital to grow their businesses.
Work by the Reserve Bank Te Pūtea Matua has highlighted that the banking sector needs to do better to foster growth in the Māori economy, which is valued at $69 billion but lags behind the broader New Zealand economy.
Teaho Pihama, head of Māori advisory at Kiwibank, said the way banks lend to businesses has had a disproportionately negative impact on Māori firms, particularly start-ups and small and medium-sized businesses.
But Kiwibank had reworked its small business lending processes to put a greater emphasis on things like the experience, expertise and customer loyalty of small business owners seeking loans.
“Importantly, for smaller sums of lending, we’ve also removed the requirement that the lending needs to be secured against a business owner’s personal property,” Pihama said.
This was a barrier identified by the Reserve Bank to Māori small business owners securing loans, as homeownership rates remain lower among Māori.
Pihama said the bank did not expect the changes to its lending processes to result in a rise in defaults, and it would be publishing some of its data when the bank reported its full-year financial results later this week.
“Banks have always applied a one-size-fits-all risk approach, which typically requires the business owner or owners to provide their residential home as security over the business loan,” Pihama said.
Led by Māori thinking
“This has an unintended negative impact on Māori because they are statistically less likely to own their own home, or the land they own is communally held and harder for banks to lend against.”
The Kiwibank project to reform its small business lending process was led by Māori thinking but it was making it easier for non-Māori business owners to get loans too.
Pihama said initially the bank intended to have a ring-fenced fund to lend to Māori-owned businesses, but said one of the bank’s Māori workers had challenged the bank to roll it out to all small business loan applicants.
“It’s all too easy for banks to look at these challenges and decide it’s too risky to lend, which makes it harder for Māori businesses to achieve their true potential and contribute as much as they can to Aotearoa’s broader economic growth,” Pihama said.
It’s not Kiwibank’s first move to reform lending processes to make it easier for Māori to access capital to improve their lives.
The bank made changes to its mortgage lending to make it more attractive for extended families to club together to buy homes, spreading the financial cost over several generations of whānau.
Solutions for lending risk
There could be more reforms on the way nationally, as part of the Commerce Commission’s market inquiry into competition in the retail banking sector would focus on Māori access to bank services, including home loans, especially those available to build on communally-owned land.
“Government-designed sources of finance have been set up for housing on whenua Māori, including the Kāinga Whenua loan scheme administered by Kāinga Ora and supported by Kiwibank. However, it has also been reported that uptake has been low, suggesting requirements may be too difficult for Māori to meet,” the commission said in its preliminary issues paper, released earlier this month.
The Reserve Bank stated that the difficulty in using whenua Māori to raise finance is a well-known and long-standing issue due to the difficulty in selling the land to recover money lent in the event of default.
However, the Reserve Bank was working with retail banks to support the development of solutions for lending on whenua Māori to improve access to capital for Māori landowners and collectives, the commission said.
-Stuff