Monopolised Capital Market Hinders Kiwis’ Access To Finance

Recent changes to the CCCFA, while welcome, are unlikely to significantly improve Kiwi access to finance because New Zealand’s capital market remains insular, with limited capital funding sources compared to other countries.

Meurig Chapman, CEO of Happy Prime, a leading specialist in credit risk within the corporate banking and financial services sectors, says that while the amendments proposed by the Coalition Government are positive, they “don’t go far enough.”

“The biggest challenge is the dominance of the big four banks, which control most of the capital markets in New Zealand (where finance companies get the money to lend). This stranglehold stifles competition and limits innovation in financial services.”

New Zealand’s capital market is unusual because it relies heavily on the four major banks for most of its debt funding

"In other regions, debt funding can be sourced from various institutions, including securitisation markets, venture capital firms, and deposit-taking banks,

“The opportunity for the government is to incentivise the creation of new financial vehicles through KiwiSaver funds, superannuation funds, or the Reserve Bank. These changes would increase competition and allow finance companies to innovate and offer products that the big four banks are unwilling to provide."

Chapman suggests three ways to bring about real, tangible change that gives New Zealander’s fair and equitable access to good quality finance.

1. Incentivise alternative funding sources

The Government must prioritise the creation of competitive capital markets outside the dominance of the big four banks.

"There needs to be a clear effort to incentivise securitisation funds or even KiwiSaver funds to create new vehicles for debt funding,” he says. This would offer more funding options for small and medium-sized enterprises (SMEs) and individuals, reducing the dependency on traditional banking channels.

2. Reduce regulatory burdens

Chapman says shifting from a rules-based to a principles-based model within the CCCFA is a step in the right direction. However, he stresses the importance of better enforcement rather than restrictive compliance regimes.

“Banks understand that putting customers into financial hardship is bad for business. We need a regime that encourages innovation in the supply of financial products while ensuring responsible lending,” he says.

Due to overly strict regulations, the previous government’s framework excluded many borrowers, such as the self-employed or those in the gig economy, from accessing finance.

3. Expand access to mainstream banking

Chapman says that financial products must be more accessible to individuals on variable incomes, such as gig economy workers or those with fluctuating earnings.

"The reforms should ensure that good credit quality borrowers are not excluded simply because their income isn’t steady,” he says. "More confidence in accessing mainstream banking services is essential for fostering a financial market that works for everyone, not just those with predictable incomes.

However, the more significant challenge lies in creating a more competitive capital market.

"We need a financial ecosystem that allows for diverse sources of funding, enabling finance companies to meet the needs of a broader range of borrowers," he says. 

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