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Exclusive: Nearly half a million Kiwis owe social development ministry $1.5 billion for loans

The Government agency in charge of taking care of New Zealand's most vulnerable is putting hundreds of thousands of people into debt.

The Ministry of Social Development has handed out $1.5 billion in loans, interest free, to 509,571 people for things like dentistry, school supplies and housing.

Social Development Minister Carmel Sepuloni said a large amount of that money is over payments, "and then it's also hardship and then it's also fraud".

This comes as the Government cracks down on loan sharks.

Social agencies argue Work and Income is no better, given benefits remain too low to cover the basics.

"They end up having to repay money every week which means they can't afford to eat or meet their weekly costs, pushing them into shark loans," said Ricardo Menendez March of Auckland Action Against Poverty.

1 NEWS spoke to an Auckland mother of three who is struggling to make ends meet. She gets $589 on the benefit.

"I'm lucky enough if I can live week to week on what I receive, especially being in emergency housing," she said.

So when her car broke down she asked Work and Income for a loan, and again when she needed to go to the dentist.

She's also been able to borrow money from the state to secure housing and furniture.

"I owe over $23,000," she said.

The woman was expected to pay back $80 a week on her loan.

National says it would consider changing the law to wipe the debt.

"That's a policy that we'll be having a look at and exploring over the next period of time," Louise Upston, National's Social Development spokesperson said. 

Ms Sepuloni says her advisory group charged with looking at the welfare system will investigate debt.

But she stands by the decision to hand out loans.

"Access to a washing machine or a fridge are things that people may need to pay back," she said.

"And I think they're really important measures to have in place through MSD because you can actually get that type of advance for those things in a way where you're not paying huge amounts of interest on top of that."

The Auckland mother of three would like a pay rise. 

"Poverty is real in New Zealand, government just doesn't see it, " she said.

She's hoping to have her debt cleared too. 

But the minister says unless there's been a mistake, like an overpayment, she and others will be expected to pay the money back.

The Ministry of Social Development has handed out $1.5 billion in loans to half a million people to pay for the likes of the dentist and a house to live. Source: 1 NEWS