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.
 

Paul Farrelly
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I represent a Leave constituency - but I want to delay triggering Brexit

Unlike most of his colleagues, Labour MP Paul Farrelly refused to vote for starting Brexit negotiations in March. He explains why. 

Not quite top marks, but eight out of 11 will do - for the justices on the United Kingdom Supreme Court, who have ruled that our country remains, indeed, a parliamentary democracy. 

Furthermore, they have ruled that legislation is necessary to trigger Article 50, which starts the Brexit process, not simply a plebiscite, nor a government diktat fancifully dressed up as a "royal prerogative".

Last June, my constituency of Newcastle-under-Lyme in the area home to the historic potteries industry voted 61 per cent to 39 per cent to leave the European Union. Yet in December, I was one of just nine Labour MPs to vote - twice - against rushing for the door by the end of March, come what may.

It was the third time since 2015 that I’d defied the Labour whip (quite modest compared with our leader’s record). The last was when - with the Tories’ true statesman, Ken Clarke - I refused to vote for the legislation paving the way for the referendum in the first place. 

I thought it a reckless gamble with our country’s future, which profoundly disregarded the lessons of the past. Six months down the line, I now realise that, of the "December nine", I was the only one with a Leave majority (though not a majority of all voters) in my seat.

Why? Was it a political death wish? A deliberate slap in the face for my electorate, who have returned a Labour MP now since 1919?

No, it simply made no coherent sense to hand the government a blank cheque before Christmas, before we'd seen what Prime Minister Theresa May wanted to achieve, and given our verdict in the national interest. 

Does that make me – like the judges again, no doubt, according to Ukip, some Tories and the Brexit press - an "enemy of the people"? Certainly not. 

My parliamentary next door neighbour Sir Bill Cash, doyen of the anti-EU lobby, has spent the last 40 years defying the "will of the people" from the overwhelming 1970s referendum. So I think we "rebels" can be cut a little slack for wanting to ask a few hard questions to hold the government to account.

On the face of it, Labour’s continued, official support for the government’s timetable renders today’s Supreme Court verdict of little practical consequence - in the Commons, at least. 

In December, our front bench had tried to be clever, crafting a mild motion calling for debate on a published plan before Article 50, to stir a Tory rebellion. But the PM smartly agreed to the demands, tacked on her timetable and Labour got trapped into riding her coat-tails. 

But at least now, through amendments to a government bill, we’ll have the chance – and so will the Lords – to influence the terms of departure, and who in the future has the final say.

In the PM’s speech a fortnight ago, I was pleased with her commitment to protecting the UK’s science base. Last week, I was at the opening of the fifth Innovation Centre at Keele University’s Science Park on my patch, for which European funding has been vital. That’s been hammered out, until 2020, but what happens further out is wholly up in the air. 

I was happy as well, of course, with the passage on workers’ rights. Ten years ago, I introduced the Private Member’s Bill to stop abuse of agency workers – a Labour 2005 manifesto commitment – which was then delivered at European level. That was aimed directly, too, at tackling the sort of levelling down that, all those years ago, was already stoking anger at immigration in areas like mine.

But these were, really, just warm words for the wider audience. The key concerns for our industry, local and national, about tariff-free trade and access to the single market are still there in spades. And in the 21st century economy, we have not squared "control of our borders". The demand for skills, not least when incomers from outside the EU – the element the government ostensibly can limit – formed the majority in the last statistics.

The reality is that, once Article 50 is triggered, the government will not control the agenda.  That will be in the hands, like it or loathe them, of the other 27 member states. 

The PM’s statement was workmanlike, with no real surprises; but what hardly helps the negotiations are the frenzied Noises Off-style gaffes. For Boris Johnson to liken any French President, on his way out or not, to a Colditz camp guard just stores up more trouble for tough times ahead.

In my formative years, way before politics, I organised international youth exchanges. Every summer, teenagers from all over Europe gathered to tend war graves in Berlin – where wounds of conflict were still fresh, and the Cold War divided the city by the Wall. 

My involvement came from growing up in Newcastle - in Staffordshire, where the German cemetery from both world wars lies next to the Commonwealth memorial on Cannock Chase. I grew up believing that the European Union and its forerunners, for all their frequent frustrations, were part and parcel of the architecture of peace, not just prosperity. 

Those loftier arguments, however, got lost sadly in the bewildering trading of facts and fictions in the referendum. "Turkey, population 76 million, is joining the EU. Vote Leave." Well no, it’s not, but those huge, bright red posters certainly changed the tone of the debate in the last few weeks on many a street last June, not just in Newcastle-under-Lyme.
 
After a narrow 52 per cent to 48 per cent Leave vote, we are now, though, where we are. 

For Labour, on our front bench Keir Starmer has been trying to make the best of a bad hand. Thanks to the Supreme Court, he now has an extra card. But I still just don’t like the way the dealer has stacked the deck.

Paul Farrelly is the Labour MP for Newcastle-under-Lyme. He has sat on numerous select committees, and currently sits on the Culture, Media and Sports committee.