If Wonga are trying to muscle in to the business market, we need a British Investment Bank more than ever

Payday lenders, not content with squeezing individuals, are now going after businesses too.

Anybody who lives in London and/or uses London buses will know that those ghastly Wonga adverts have been replaced. By Wonga adverts. Though this time, for small businesses.

Wonga for Business offers loans of £3,000 to £10,000 which are available for terms of between one and 52 weeks. Costs vary with an interest rate of between 0.3 per cent and two per cent which seems competitive if repaid early, but a 52 week loan, according to Tim Harford, at 2 per cent could work out to have attached to it an interest rate of 280 per cent per year.

Another estimate, this from Sharlene Goff (the FT’s retail banking correspondent), estimated that the largest loan (£10,000) for the longest term (a year) would rack up almost £11,000 in charges.

I exchanged emails with a spokesperson from the company during the week, hoping to find out some tangible figures for how well the new venture is going. All I was told, sadly, was that there have been thousands of applications thus far, and good feedback from people who have been approved, but due to the commercial nature of the company all evidence was kept under wraps.

OK so the suspicion is that it is all bluster. A commercial company with no evidence to show off saying that they're doing great to put the willies in their competitors. But I'm not so sceptical, unfortunately.

Wonga have come to be recognised as another unsavoury payday lender, and for good reason in my opinion, albeit one that is slightly more public-facing than the rest (and this says an awaful lot about the rest). Though what I've come to learn about this financial product is that it often fills in and exploits the gaps where mainstream services are falling behind.

This is the case with payday loans to individuals. And it is the case for businesses as well. Research in November by the Federation of Small Businesses showed that between 2007 and 2010 there was a 24 per cent fall in successful loan applications, while more than half of the small firms that applied for an overdraft last year were rejected.

Even in the good times things weren't sparkly. As Duncan Weldon at the Touchstone Blog has pointed out, "around 85 per cent of bank lending [had been] going to either financial companies or property" even in better financial times.

Competition in this market is rather flat as well. In 2011 the Independent Commission on Banking identified that the largest four banks account for 85 per cent of SME current accounts.

So though Wonga are playing on a very real problem in the state of play in the financial sector, the real issue lies in the failure of banks to lend to small and medium businesses – surely a vital element in our economic recovery.

But what is in our armoury? What tools can we use? It certainly didn't go unnoticed this week that Ed Miliband used the opportunity at the Co-operative Bank HQ to talk up the merits of a British Investment Bank – on the day that the Labour party published a report by Nicholas Tott, a former city lawyer, to make that very case.

Although, this case has been made again and again – why should it have taken this long? One of its most active proponents is Lord (Robert) Skideslsky. In one of his many cases for a national investment bank he exemplifies the European Investment Bank (the European Union's public development bank).

EU governments that own the EIB, in contributing an equivalent sum of £32bn, alongside the bank itself borrowing a further equivalent to £271bn from private capital markets, the EU governments were able to finance investments worth more than the equivalent of £304bn including for ports from Barcelona to Warsaw, the TGV network in France and the world-leading offshore wind industry here in Britain, creating jobs along the way.

Another example, in Germany, is the Kreditanstalt fur Wiederafbau (KfW), a second tier bank, provides cheap loans (liquidity loans at low rates and long maturities) to SMEs using the commercial banks as intermediaries. In 2010, KfW financed loans worth a record €28.5bn for SMEs, creating 66,000 jobs in addition to the 1.3m jobs it helped maintain (which has been on Labour's mind since Lord Mandelson made it the model de jour).

Why has it been most pertinant that Miliband raise the spectre of a British Investment Bank at the time he did (even though he, and others, commissioned the report by Nicholas Tott in December 2011)? Because as Skideslsky notes:

“The financial crisis has left the impression that the main purpose of the banking sector is to enrich a tiny elite at the expense of taxpayers.”

We may all understand in principle that a functioning financial system is crucial to the national economy, but we can hardly attest to this happening in practice (consider, if you will, the NEF calculation that for every £1 paid to “elite” city bankers £7 of social value is destroyed, as well as the damning verdict of Adair Turner, the chairman of the UK Financial Services Authority, who views the past decade of financial innovation as mostly "socially useless").

In short, a British Investment Bank is something that could gain cross-party consensus, provide a real solution to the lending shortfall, build up SMEs, jobs and growth – and allow entrepreneurs to avoid the lending freeze or risking it all with expensive business loans from Wonga.

As a parting shot the Wonga spokesperson told me that we can expect to see “more products from us before the end of the year, but I can't give you any hints I'm afraid”. Perhaps if we are diligent enough we can spot the financial shortfalls before Wonga get there first.  

A payday lender. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

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The Taliban's succession crisis will not diminish its resilience

Haibatullah Akhunzada's appointment as leader of the Taliban may put stress on the movement, but is unlikely to dampen its insurgency. 

After 19 years under the guidance of the Taliban’s supreme leader Mullah Omar, the group has now faced two succession crises in under a year. But although Haibatullah Akhunzada’s appointment as leader of the Taliban will likely put stress on the movement, it shows few signals of diminishing its renewed insurgency.

The news pretty much ends speculation about former leader Mullah Akhtar Mansour’s death in a US airstrike in Pakistan’s south-western Baluchistan province, which was criticised by Islamabad as a violation of its sovereignty.

The Taliban would have prepared extensively for this eventuality. The fast appointment, following days of intense council, appears to be a conspicuous act of decisiveness. It stands in contrast to the two-year delay the movement faced in announcing the death of the Mullah Omar. It will be not be lost on the Taliban that it was subterfuge around the death of Mullah Omar that caused the fracture within the movement which in turn led to the establishment of an ISIS presence in the country.

The appointment is a victory for the Taliban old guard. As former head of the Taliban's judiciary and Mullah Mansour’s deputy, in many ways, Haibatullah is a natural successor. Haibatullah, described by Afghanistan expert Sami Yousafzai as a “stone age Mullah,” demonstrates the Taliban’s inherent tendency to resort to tradition rather than innovation during times of internal crisis.

The decision taken by the Taliban to have an elder statesman of the group at the helm highlights the increasing marginalisation of the Haqqani network, a powerful subset within the Taliban that has been waging an offensive against the government and coalition forces in northwest Pakistan.

Sirajuddin Haqqani, the leader of the Haqqani network who already has a bounty of 5 million dollars on his head, was touted in some Taliban circles as a potential successor, however the decision to overlook him is a conservative move from the Taliban. 

The Taliban’s leadership of the jihad against the Afghan government is hinged on their claims to religious legitimacy, something the group will hope to affirm through the Haibatullah’s jurisprudential credentials. This assertion of authority has particular significance given the rise of ISIS elements in the country. The last two Taliban chiefs have both declared themselves to be amir ul-momineen or ‘leader of the faithful,’ providing a challenge to the parallel claims of ISIS’ Abu Bakr al-Baghdadi.

Any suggestions that Mansour’s death will lead to the unravelling of the Taliban are premature. The military targeting of prominent jihadi leaders within group structures has been seen in operations against the leadership of ISIS, al-Qaeda in the Arabian Peninsula, al-Qaeda in the Islamic Maghreb, and other groups.

In recent research for the Centre on Religion & Geopolitics, we found that it is often less prominent jihadis that play an integral role in keeping the movement alive. Targeted killings do create a void, but this often comes at the expense of addressing the wider support base and ideological draw of militant outfits. This is particularly relevant with a relatively decentralised movement like the Taliban.

Such operations can spur activity. If the example of the Taliban’s previous leadership succession is to be heeded, we might expect renewed attacks across Afghanistan, beyond the group’s strongholds near the eastern border with Pakistan. The brief capture of Kunduz, Afghanistan's fifth-largest city, at the end of September 2015, was a show of strength to answer the numerous internal critics of Mullah Mansour’s new leadership of the movement.

In a news cycle dominated by reports of ISIS, and to a diminishing extent al-Qaeda, atrocities, it is important to comprehend the renewed brutality of the Afghan insurgency.  Data from the Centre on Religion and Geopolitics Global Extremism Monitor found a seventeen per cent rise in fatalities from March to April, marking the start of the Taliban’s spring fighting season. A suicide attack in central Kabul on the headquarters of an elite military unit that killed 64 people was the single most deadly act of terror around the world in the month of April, and the group’s bloodiest attack in the Afghan capital for years. Reports this morning of a suicide attack on a bus killing 10 staff from an appeal court west of Kabul, suggests that the violence shows no sign of diminishing under the new leadership.

All these developments come during a period of renewed impetus behind international peace talks. Last week representatives from Pakistan were joined by delegates from Afghanistan, the United States, and China in an attempt to restart the stalled negotiation process with the Taliban.

Haibatullah Akhunzada’s early leadership moves will be watched closely by these countries, as well as dissonant voices within the movement, to ascertain what the Taliban does next, in a period of unprecedented challenge for the infamously resilient movement. 

Milo Comerford is a South and Central Asia Analyst for the Centre on Religion and Geopolitics