There is no silver bullet for dealing with loan sharks but proposed changes will help, Consumer Affairs Minister Craig Foss says.



While Labour has unveiled plans introduce low- and zero-interest loans in a bid to stamp out lending by unscrupulous loan sharks, Foss has defended the Government's own initiative.



Foss said the Credit Contracts and Consumer Finance Amendment Bill would require lenders to act responsibly, give consumers the information they needed and introduce significant consequences for those who breached the law.



"Lenders will have to take responsibility for the likely effect of the credit they provide," he said.



The Government also announced an extra $1.5 million for budgetary advice services, Foss said.



"There is no silver bullet here," he said.



"Changes in the Bill are part of the solution, as are budget-advisory services and the Government's on-going commitment to improve financial literacy in New Zealand."



Labour says the changes do not go far enough.



Social development spokeswoman Jacinda Ardern and consumer affairs spokeswoman Carol Beaumont have teamed up to promote the party's social lending policy.



Largely based on an Australian model, it would see a Labour government working with banks and community organisations to provide low- or no-interest loans to people shut out of the mainstream credit market.



Applicants would have to meet a number of criteria.



In the Australian "Step Up" model, run by the federal government, NAB bank and Good Shepherd Microfinance, the maximum loan amount is $3000 and interest is charged at either 3.99 per cent or zero per cent. It has a default rate of about 6 per cent.



Ardern said she expected something similar here. She had held discussions with some New Zealand banks and believed there was an appetite for it.



Banks would invest the capital, non-profit community groups would provide the budget and support services for loan recipients, and the Government would provide the regulatory framework, credibility, and support.



"We're looking at what we can do to help people who find themselves unable to access reliable, credible lenders," Ardern said.



"What we want to do is send a strong signal to the private sector that we will work in partnership with them to develop something in this area."



Social lending was not a replacement for normal loans, and would be available only to beneficiaries and low-income earners who met the criteria, not the general public, she said.



Public-private partnerships for microfinancing was recommended by the children's commissioner's expert advisory group last year.



A pilot scheme run by Kiwibank and Nga Tangata Microfinance Trust was already under way in South Auckland.



Federation of Family Budgeting Services chief executive Raewyn Fox is involved in the pilot and said it had been a great success. Loans were capped at $2000 and were available only for essential household items. None of the loans had defaulted.



The problem with expansion was about capacity, Fox said.



"We have been restrained by resources," she said.



"Budget services have been really busy."



NAB spokeswoman Corinne Proske said the financial literacy provided to borrowers was essential and was where the Australian Government had been able to help.



"I really encourage the Government there at the beginning," she said.



"I think it's a really important signal."



Beaumont said that while the New Zealand Government dragged its heels on dealing with loan sharks, more families were falling prey.



* An earlier version of this story mistakenly named Simon Bridges as Consumer Affairs Minister. Craig Foss took over the portfolio this January.