No interest loans designed to give low-income Aucklanders an alternative to borrowing from loan sharks are now being made.

It's the second stage of the Community Finance Initiative pilot project financed by BNZ, which started making low interest loans in August last year.

The scheme parallels an Australian scheme funded by BNZ's parent bank, National Australia Bank.

The bank provides the capital and lending smarts for low and no interest loans to poor people, with charities finding the borrowers.

The borrowers are people who seek financial help, and who are struggling to manage to pay for even the basics of life.

The New Zealand project involves BNZ, the Good Shepherd charity, and The Salvation Army.

The Social Development Ministry been involved in setting up the scheme, and funds some of the costs. It does not provide funds to lend.

The loans are guaranteed by BNZ, which has so far committed $10million of capital to be lent out.

The no interest loans, known as NILS, are designed to help people that banks don't normally lend to, and who are often forced to borrow at high-interest rates, sometimes 30 per cent or higher, from loan sharks and pay-day lenders.

NILS are not big loans, up to a maximum of $1000 to be repaid over 12 months, and they are available to people on low incomes through The Salvation Army's centres in Manukau in South Auckland and Waitakere in West Auckland.

They can be used to purchase essential services or household items that directly improve the lives of borrowers. Many are expected to be used to keep cars on the road.

Joanne Forgie, a Community Finance worker at The Salvation Army's Manukau Community Centre, said: "Being able to have the car fixed means the person can still get to work, get the kids to school, or get to a doctor's appointment. The repayments on a $1000 loan can be as little as $20 a week, and with no interest or other fees charged, the loans are paid off even faster."

The low interest loans, or StepUp loans, already being made are up to $5000 and carry an interest rate of 6.99 per cent.

Few StepUp loans have been made so far, but in Australia, where they and NILs have been available for 10 years, over 145,000 of the two types of loans have been made, with the loans collectively having added up to more than A$130 million ($134m).

In Auckland, there have been over 40 loans and on average over the lifetimes of the loans they are expected to save borrowers up to $2000 in interest.

If the pilot is a success, BNZ is expected to commit more capital for lending to allow loans to be made in other main centres like Wellington, Hamilton and Christchurch.

BNZ's head of community finance, Frances Ronowicz said there was no fixed timetable for that roll-out, but said that BNZ had invested heavily in the infrastructure to make that possible.