On the face of it, the removal of any lender who appears to take advantage of the poorest members of our society and charges them usurious interest rates (these are the accusations usually levelled at Wonga and others like them) must be a good thing. But there is a big BUT.
Wonga loaned millions of pounds often to the poorest and most disadvantaged people because they had nowhere else to go. These were not loans for luxuries, loans for things that were nice to haves – they were loans because people were desperate for funds, funds to pay the rent or the electricity bill, to buy school uniforms, to put food on the table – necessary because they were struggling with poverty from which there was no way out, and because no one else would provide them with funds.
People find themselves in these situations for a range of reasons but often it is because of our benefits system – arbitrary sanctions stopping benefits income for weeks on end, changes to benefits, reviews of benefits when often benefits are stopped whilst reviews happen, or simply because benefits paid are only half of the recognized figure necessary to keep people above the UK poverty line. Then there is in-work poverty – people working long hours in low paid jobs which don’t bring enough for them to cover their basic living needs and the added costs of travelling to wherever the work is and, in many cases, childcare.
The loss of Wonga means that one source of funds, however expensive and unfair it may have been, has been removed which limits the options for people in this predicament even further and opens the very real danger of forcing them into the arms of illegal, unregulated lenders who are still out there.
There is an ethical alternative to all this provided by Responsible Finance Providers (members of the Responsible Finance Association) like Purple Shoots, but in the same way as our borrowers struggle to get support, we struggle to get support in order to support them! All of us are constantly struggling to raise capital to lend and what we do is limited as a result. None of us have big budgets to enable us to promote what we do to a wider audience (so we don’t appear on adverts on prime time TV like the payday lenders can) and even if we did, we would not have sufficient funds to meet the demand that would produce.
When I started Purple Shoots, I was intending to cover Wales with our lending, but the floodgates of demand that opened just in the immediate vicinity of our base in Pontypridd meant I had to be much more cautious. I know that there is an unmet need throughout Wales which I could meet with more capital – and it is the same scenario for many of my counterparts elsewhere in the UK.
If you present this issue to Central Government, they will point at Big Society Capital who are administering dormant bank account money which is meant to be for social good. However they are only investing for a return on their funds – they acknowledge that this will severely limit the social impact they can have, but that doesn’t appear to bother them.
Purple Shoots does not make a profit and so cannot offer them a return – they are not interested in supporting us unless we can do that, which means we would have to times four our interest rates – becoming like Wonga. The British Business Bank don’t like the Responsible Finance sector – they think there should be fewer of us (there aren’t that many anyway) and we should all operate in the same way – completely overlooking what is our principal strength – that we are all locally based, understand local economies and local issues, and are small enough to be able to adapt and respond to local needs. So I am irritated by any politician or civil servant delighting in the demise of Wonga because they seem blind to the fact that unless they support alternatives, things for potential Wonga customers will only get worse.
The only light at the end of this rather bleak tunnel is Michael Sheen and his End High Cost Credit Campaign. They do understand that it would be foolish to take out the unethical lenders without supporting alternatives, and without tackling the issues that created the need for them in the first place.
They have quite a lot of mindsets in the political and financial arena to change – but Purple Shoots and others like us have a raft of evidence of the difference responsible and ethical lending can make to people who are written off by all the other institutions (including the Government) and are poised to back up anything they do to try to change things. I am optimistic that their activities stand some chance of bringing about a positive change which will be to the advantage of the people we serve.