After a long period on the fence, officials in Tampere have decided to adopt the social lending system. Starting in February, the city will offer credit to low income or otherwise chronically cash-strapped people who can’t get loans on reasonable terms from institutions like banks. Chief planner Maritta Närhi said the specific aim is to help people struggling with financial troubles.
"It is meant for people who are in debt but who don’t have the means to service their debt. For example they may have many small loans and have lost their good credit rating. The goal is to combine the loans and pay them off in installments that will allow these people to regain their credit rating," she explained.
According to the Ministry of Social Affairs and Health, just 30 of more than 300 municipalities in Finland offer social lending to residents. Like many other municipalities, the maximum amount that an individual can borrow under the programme is 10,000 euros and the maximum repayment period id five years. Interest on these loans tends to be rather low.
Getting finances back on track
The idea of the lending programme is to get people who have begun defaulting on their payments back into the mainstream and to prevent marginalisation. Tampere city’s Maritta Närhi pointed out that losing a good credit standing can affect life in many surprising ways.
"A payment default record can make it difficult to rent a home or even get a mobile phone subscription. It makes it impossible to get a bank loan on reasonable terms. It’s also difficult to get online banking access if you have a history of payment defaults," she noted.
According to the ministry, which is responsible for legal administration of the programme, social loans may also be granted for purposes such as acquiring amenities for the home, getting a job, rehabilitation or securing a home.
Municipalities are free to decide whether or not to offer the service, and have full discretion in granting the loans.
Other cities that currently offer social loans include Espoo, Vantaa, Helsinki, Lahti and Oulu.