Microfinance shouldn't do the government's job

It is a requirement of civil society that government obviate the need for payday lenders, writes Carl Packman.

There has been a recent interest in microfinance as a means to draw vulnerable people away from the scourge of payday lending – an industry which saw its inevitable growth over the Christmas period, with the number of enquiries about it at the Citizens Advice Bureau doubling from last year. 

The Financial Times recently ran an article headlined Microfinancier gives payday lenders run for money. Reporter Sarah O'Conner discusses to what extent this type of financial product offers a fairer deal for borrowing money, with more manageable prices attached to loans: £162 on a 52-week loan of £600 compares well with the £25-30 per month you can expect to pay for a loan of £100 with the average high cost credit seller. 

Although relatively rare in the UK, the microfinance movement is over 40 years old. It all began in the early 1970s in Bangladesh and Latin America and since then has seen small but effective support around the world. 

I spoke to Saloman Raydan Rivas, a microfinance expert, about Professor Mohammed Yunnus, the don of the microfinance movement. Rivas told me Yunnus wanted to develop a banking model which did not take advantage of the poor, but he was unsure of how to tap into existing local lending mechanisms, such as self-financed communities, to bring about change on a wider scale. 

Today there are many people trying to realise his dream, and Fair Finance, the case studied in the Financial Times' article, is one. In fact Faisal Rahman, the company’s director, is strongly influenced by the microfinance movement, and hopes to bring it to market in the UK.

But there is something rather rocky about relying on private equity funding, as Fair Finance does (a fact not discussed in the Financial Times article) that makes me worry, both in practice and on first principles. 

Fair Finance was declined investment money by Barclays and the Royal Bank of Scotland when it first started out, and they even had problems with Santander, which would not put up investment alone. When I asked Rahman about it, he admitted it was a setback, and one could argue this is hardly a surprise. Rahman wants funding from investors to sell loans ethically to people, charging low interest, and risking low returns, all to realise a dream of creating a banking model that undercuts usurers and rip-off merchants. 

For all the good he wants, many investors clearly see the words “low return” and run a mile. In short, we cannot rely on the good nature of profit-making big banks to finance ethical, non-profit, lending schemes. But should we expect any private business to do this? Since it is in the interest of the public purse to keep individuals' personal debt profiles down, should ethical lending not be a standard expectation of the government? 

It is surely a requirement of a civil society that the government allocate enough money – for instance, through a credit union – to ensure consumers aren't left with going to payday lenders as their only option.

Having said that, I understand Rahman’s motives. Recently it was reported that a loans company who target personnel in the armed forces with high cost credit at 3,300 per cent interest was sold advertising space in Defence Focus, the magazine of the Ministry of Defence. Is this perhaps a sign of how relaxed public bodies have become about payday lending?

High cost loans for the armed forces has become a big issue. A representative of Waterhouse Baker, who offer financial advice to any serving member of the forces, told me that payday loans is often a short-lived solution, “as many default as the monthly expenditure is too high for the income gained”. 

Problems like these need solving fast, because the problem of high personal debt is one which affects the whole economy and the whole society. For me, the buck stops with the government.

Given the enormity of the problem of debt, government should be in charge of reversing it. So while the aims of Fair Finance and other similar organisations are positive, pricing out payday lenders should be chiefly the preserve, not of microfinance, but of the state as part of its commitment to maintaining a civil society.

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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What does it mean for Ukip if it loses in Stoke-on-Trent Central?

The party’s prospects are in question if it fails to win over the “Brexit capital” in Thursday's by-election.

“The Only Way Is Up!” blasted through a hall in Stoke-on-Trent Central on a damp Monday evening earlier this month. It was the end of a public Ukip meeting, in which Nigel Farage and his successor and by-election candidate Paul Nuttall made their rallying cries to an audience of around 650 supporters.

But even then, a fortnight ago, the note of triumph in the dance classic was tinged with uncertainty. “We’ve won the war, but we’ve yet to win the peace,” Farage admitted to the sympathetic crowd. And while this message is supposed to make Ukip’s fight relevant even in the context of Brexit-bound Britain, it betrays the party’s problem: the battle that was its raison d'être is over.

Failing fortunes

Since then, the party has had more to contend with. Its candidate in the Labour seat has been caught lying about having “close personal friends” killed at the Hillsborough disaster. This comes on top of a number of other false claims, and an investigation into whether he falsely registered his home address as being in the constituency.

After these scandals – and a campaign seemingly unable to turn out apathetic voters (which I covered a couple of weeks ago) – Ukip’s chances in the West Midlands seat look worse than expected.

Initially the main challenger to Labour, Ukip is now being predicted for third or even fourth place in the seat, behind a Tory party that essentially stood aside to give Nuttall room, and to focus on a concurrent by-election campaign in Copeland.

It’s in Labour’s interest for the campaign to continue looking like a close Labour-Ukip fight, in order to keep hold of tactical voters. But both the Conservative and Lib Dem campaigns are feeling more buoyant.

“We are relatively confident that Ukip are not going to win, and that is quite a change,” the Lib Dem campaign coordinator Ed Fordham told me. “That has actually relieved lots of voters of the emotional risk of letting in what they perceive to be an unpleasant, far-right option . . . and voting for who they would like to represent them.”

One local activist chirped: “It will hopefully be a terrible result for Ukip.”

So what will it mean for Ukip if it loses?

Great expectations

Ukip has a lot riding on this seat. Farage called the by-election “absolutely fundamental” to Ukip’s future. Its new leader, Nuttall, took the risk of running as the party’s candidate there – riding his reputation on the by-election.

This created a lot of hype about Ukip’s chances, which the party has privately been trying to play down ever since. Even before the scandal surrounding Nuttall, he was emphasising that the seat had only been Ukip’s 72nd target, and told me he had taken a gamble by running for it. “The way it’s being written up as if this is the one – it wasn’t,” he insisted.

But Stoke-on-Trent, where 69 per cent voted Leave, has been labelled the “Brexit capital”. According to political scientist Rob Ford, the author of Revolt on the Right who has been studying Labour’s most Ukip-vulnerable seats: “It should be a pretty favourable seat for them, pretty favourable demographics, pretty favourable [negative] attitudes about the EU, very high Brexit vote there and so on.”

In other words, if Ukip can’t win here, against a weak Labour party, where can it win?

Struggle for seats

Brexit is central to Ukip’s by-election campaign. The party has highlighted Labour’s splits over Europe, pointed out the Labour candidate Gareth Snell’s Remainer credentials, and warned that the government needs to be held to account when negotiating Britain’s exit.

But Ford believes this rhetoric is unlikely to work, since the Tories are already pursuing a “hard” Brexit focused on immigration control. “A difficulty for Paul Nuttall and Ukip is that people are going to say: why would we vote for you when we’re getting what we want from the government? What’s the point right now?” he said. “I can have all the Brexity stuff, all the immigration control stuff, but with none of the incompetence and serial lying about Hillsborough – I think I’ll take that!”

So if rerunning the EU referendum doesn’t work, even in such a Brexit-heavy seat, this means trouble for Ukip elsewhere in the country. A Ukip councillor in a top Ukip target seat with similar demographics to Stoke believes it’s “crisis time” for the party.

“It is very sad to say, but Ukip has lost its way,” they told me. “It’s still a strong party, but after losing Nigel, it’s lost a little of its oomph. The new gentleman [Nuttall] has been silly with the comments he’s made. That’s a big worry in some regards. You need to be a people person. It’s a serious situation at the minute.”

If Ukip can’t prove it can win parliamentary seats – even in favourable by-elections – then it will be difficult to prove its authority as a political party come the general election.

Leadership lament

Should Nuttall lose, Ukip’s leadership will come into question. Again. During a tumultuous time late last year, when the favourite Steven Woolfe left the party after a physical altercation, and Diane James quit the leadership after 18 days, commentators asked if Ukip was anything without Farage.

When Nuttall eventually took over, the same voices warned of his threat to Labour – citing his northern and working-class roots. It’s likely this narrative will change, and Farage’s golden touch pondered again, if Nuttall fails to win.

But rather than panic about its national leader, Ukip must look carefully at those who commit to the party in local campaigns. On the ground in Stoke, running Nuttall as a candidate instead of a local Ukipper is seen as a mistake.

“I don’t know why they did that,” one local activist for an opposing party commented. “If they’d run Mick Harold, they would’ve won. He’s a Stokie.”

Harold, the deputy chair of Staffordshire County Committee, and chair of Ukip’s Stoke-on-Trent Central/North branch, won 22.7 per cent of the vote for Ukip in the constituency in 2015. He insists that he stands by his decision to step aside for Nuttall, but does highlight that Ukip should increase its vote share.

“If we’re increasing our percentage share of the vote, we’re still moving forward and that’s how we’ve got to look at it,” he told me. “I got 22.7 per cent in 2015. I would think this time we’re going to certainly get somewhere around the 30 per cent mark.”

Would it have been more likely to achieve this with Harold as candidate? “Whatever happens, happens, we’ve just got to move forward,” he replied. “If you’ve made a mistake, you move on from it.”

I have heard similar misgivings from local activists in other parts of the country – people who have achieved impressive results in local elections and the general election, but haven’t had much thanks from the national party. “We need to get professionalised now,” one such campaigner said. “Because we’ve got grassroots people who are not career politicians [doing all the hard work].” They say their local party is fed up with leadership being dictated by “personal grudges” at the top of the party.

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As I’ve written before, I don’t think this is the end of Ukip. Once Brexit starts to bite, and it’s clear immigrants are still needed to fill jobs, there will be resentment enough to make space for them again. But losing Stoke will highlight the challenges – of purpose, leadership and local organisation – that the party will need to overcome for its next stand.

Anoosh Chakelian is senior writer at the New Statesman.