The Archbishop of Canterbury has declared war on pay-day loan company Wonga. But in a move that should delight the hearts of those who believe in free markets, he proposes to attack them not with calls for regulation, or abuse, or criticism or moral obloquy, but with direct competition. Archbishop Justin Welby proposes to open Credit Unions — simple local financial cooperatives — operating out of church premises to offer loans at lower rates.
It’s certainly true that Wonga’s rates are eye-watering. But then they’re in the business of offering small, short-term loans. The administrative costs of their business model are bound to be high, and their bad-debt rates as well. Imagine you wanted say £100 for a week to tide you over. It would hardly be worth Wonga’s while to answer the phone unless they stood to make say a tenner out of the transaction. Fair enough, you might say. But look at 10% a week as an annual interest rate at compound interest over the period, and you’re over 10,000 percent (if I’ve done my sums right).
Then the administration of loans might be a challenge for the Church. I Tweeted “If Wonga’s rates are too high, there’s a market opportunity for a lower-priced competitor”. Someone responded “Yes, but will your local church be able to approve a loan in fifteen minutes?”. That’s a problem for the Reverend Welby. But unusually for a Churchman, he has experience in the City, so hopefully he knows what he’s doing. If his project is to succeed, he needs to be competitive on service as well as price.
But those few of us who still remember such things cannot help but be ruefully reminded of that story from the New Testament, The Gospel of Saint Mark Chapter Eleven. “And they came to Jerusalem: and Jesus went into the Temple, and began to cast them out that that sold and bought in the Temple, and overthrew the tables of the moneychangers ….and he taught, saying unto them My House shall be called the house of prayer, but ye have made it a den of thieves”.
It seems that bankers were no more popular then than they are now.