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.
 

Photo: Getty
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Stanley Johnson's Diary

The author on iguana burgers, cricket with Boris – and what Russia really knew about Brexit.

My week began with the annual Earl Spencer v Boris Johnson cricket match, held at Charles Spencer’s Althorp House in Northamptonshire. This is a truly wonderful event in a wonderful setting. Boris’s team has not yet notched up a victory, even though we once fielded Kevin Pietersen. This year, we actually came close to winning. The Johnson team made 127. Charles Spencer’s, with one over left, was on 123. It was a nail-biting finish, and they finally beat us with only two balls left to bowl.

Clapping for Britain

The day after the match, I was invited to lunch at the Travellers Club to meet Alden McLaughlin, the premier of the Cayman Islands, and other members of his government who were travelling with him in London. I discovered that his vision for the islands’ future extended far beyond the financial sector, central though that is. He was, for example, proud that the Cayman Islands – like other UK overseas territories – contribute enormously to the UK’s biological diversity.

“The blue iguana is endemic to the Cayman Islands,” McLaughlin explained, “and it is one of the great environmental success stories of our time. It has been brought back from the brink of extinction.” If the blue iguana is on the way to recovery, it seems that the green iguana is superabundant. “We must have a million of them,” he said. “They are getting everywhere. We are working on a strategy to deal with them.” I told him that I once had an iguana burger in Honduras. He shook his head. “We don’t eat iguanas in the Caymans.”

Premier McLaughlin was also able to offer a useful insight into Britain’s current Brexit-related tensions. In 1962, the Cayman Islands were forced to decide whether to stay with Jamaica, as Jamaica became independent, or to stick with Britain as a separate crown colony. “We decided by acclamation,” McLaughlin told me. “One side clapped loudest; the other side clapped longest. The loudest side won. We stayed with Britain.” Like the latest Johnson-Spencer cricket match, it was a close-run thing.

Light touch

Last week, we went to the first night of the Proms at the Royal Albert Hall and, in the course of an inspiring evening, heard Igor Levit, born in Nizhny Novgorod, give us a haunting version of Beethoven’s Third Piano Concerto. There were mutterings afterwards that he shouldn’t have chosen Liszt’s transcription of Beethoven’s Ode to Joy as his encore, but if Levit meant this as a political statement – and he probably did – it was done with the lightest of touches. He doesn’t paint his message in huge capital letters on the side of a bus.

An open goal

My sister, Hilary, who emigrated to Australia in 1969, has been visiting. We spent two days on Exmoor in the middle of the week, on the family farm where we grew up, before coming back to London for the launch of my 25th book and tenth novel. Kompromat is a satirical political thriller that aims to recount the real story behind both the election of Donald Trump as US president and the pro-Brexit vote in last year’s referendum. There is a quotation from the former London mayor Ken Livingstone on the front cover: “It’s brilliant and, who knows, maybe it’s true.”

In interviews, I have been asked whether I really believe that the Russians might have been behind both Trump’s victory and Brexit. My response is simple. In the US, the idea of Russian interference in the election is being taken very seriously. Over here, we don’t seem to be bothered. I asked myself, when I started writing Kompromat in February, why wouldn’t the Russians have taken a shot at an open goal?

My fictional British prime minister, Jeremy Hartley, is a deeply patriotic man, convinced that the only way to take Britain out of the EU is to call a referendum – with a little help from his “friends”. But I don’t want to give too much away. Channel 4 has bought the rights and will be programming six half-hour episodes.

All in the family

Hilary and I went to Wimbledon for the ladies’ final as the guests of her old friend David Spearing. Usually referred to by tennis addicts as “the man in the black hat”, he first became a Wimbledon steward in 1974 and, even though he has lived in Abu Dhabi for the past 50 years, he never misses a season. As the longest-serving steward, he gets to sit (wearing his famous hat) in the “family box” at Wimbledon, the one where close relatives of the players are invariably placed.

We met Spearing in the officials’ buttery during one of the intervals (Venus Williams had just been walloped by Garbiñe Muguruza). Later, as he walked us back to our seats, people kept stopping to ask him for a selfie. “I’ve been on duty in the ‘family box’ for 20 years,” he explained. “They all know me, from the TV or in person, seeing me sitting there hour after hour. The first time Andy Murray won the championship, he climbed up into the box to hug his girlfriend. I noticed he had missed his mother, who was sitting over to the side. ‘Don’t forget about Mum, Andy,’ I told him!” 

Stanley Johnson’s novel “Kompromat” is published  by Oneworld

Stanley Johnson is an author, journalist and former Conservative member of the European Parliament. He has also worked in the European Commission. In 1984 Stanley was awarded the Greenpeace Prize for Outstanding Services to the Environment and in the same year the RSPCA Richard Martin award for services to animal welfare. In 1962 he won the Newdigate Prize for Poetry. He also happens to be the father of Boris Johnson.

This article first appeared in the 20 July 2017 issue of the New Statesman, The new world disorder

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