Sunday, 10 November 2013

Wonga Wonga

If you are a Brit, you know Wonga very well. If you aren't, you probably have not heard of them. Ed Miliband, Britain's opposition leader even called the ruling government's philosophy, the "Wonga economy". This post is a continuation of my struggle with moral dilemmas -  its been that sort of a time these days. What was black and white  long ago,  now, appears to be impossible shares of grey - far more than fifty, if you must know !

Who or what is Wonga ?  Wonga is a provider of  something called payday lending - a concept very familiar to those of us who came from humble beginnings. Wonga gives small amounts of credit for extremely short periods - until the next pay day. It helps poor families tide over until the next salary comes. The maximum amount you can borrow is £ 1000 and the maximum period you can borrow upto is 30 days. Loan evaluation and grant is extremely quick (has to be , isn't it) . Sounds very good. So what's the catch ?

The catch is that the interest rate works out to  some 5000% per annum. Yes, the number of zeroes is correct and there is no mistake in the decimal point. Five or six thousand percent per annum. Except that when you charge it, say for 18 days, it doesn't seem to amount to much in absolute money.
On the face of it, you can't fault Wonga. They are extremely efficient in processing and disbursing loans ; often on the same day. They don't hide the interest rate or the charges you have to pay. Their website couldn't have been more clearer on this - they say 5853% clearly  (credit card companies might wish to learn a thing or two from them). So , they are not cheating anybody. They are upfront with the costs, deliver exactly what they say and as a consumer, you have every right to take them or not go anywhere near them.
On the other hand, you can argue that if ever there was a better example of usury, you would be hard pressed to find it. 5000 % ?? Does anybody need to buy anything at all borrowing moneys at 5000% interest. ? This is what is getting Ed Miliband's goat - the culture of borrowing at ridiculous costs to buy things you don't really need. Or at least you wouldn't die if you didn't have them. Yes there may be emergencies , for which such financing is a boon, but outside of that, do you really need it. Remember, this is the UK, where the NHS makes sure you get free medical care; so can there really be an emergency outside of the medical arena ?
This is , of course, not unique to the UK. In India, the local pawn broker performs exactly the same function. Judging by the numbers of people who make use of pawn brokers, Wonga and the like, there is a big consumer need for such service - interest rates be damned.
Herein is my dilemma. There is a consumer need and this is being filled transparently, legally and efficiently , at least by Wonga. If this were banned, it would only drive the providers of such a service underground and result in probably far worse terms. (Indian governments who banned micro finance might want to think about it).  At the same time, don't consumers need protection from usury. And should we not be discouraging a culture that  wants immediate luxuries and pays for it by borrowing -  the same culture that sees each nation saddled with huge debt.   But who am I to say what is a luxury and what is a necessity ? A poor man who cannot afford it, but  borrows to go on a holiday may be called an idiot. But then, he has to have some happiness in life. So, by what and whose standards should we judge. Should we allow the free market to operate and whoever wants to do whatever can happily do so, even if he is digging his own grave ?  But aren't there undesirable social trends that we should be actively fighting against - isn't that why we don't allow free drugs .... I am in a whirl.  HHEELLPP !!

17 comments:

  1. @Ramesh: As long as Wonga is not soliciting business through false promises, as long as it is taking care to inform people exactly what they are signing up to, they should be left alone. A couple of months ago the Archbishop of Canterbury pronounced his displeasure at Wonga and the next day several columnists in the FT jumped on him - telling him exactly how the regulated market works.

    It is a different point that British culture is all about immediate gratification. But that's not the fault of Wonga.

    Leave it alone, is my aged advice.

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  2. @Ravi - Oh yes; I knew you would exactly say this !

    BUT

    If a large number of those who borrow are youngsters, if those who borrow do so to maybe feed their children and given that the Archbishop of Canterbury is in some ways the moral custodian of your nation, then ..........

    would you still say the same thing ?

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  3. @Ramesh - then I would expect the Archbishop to motivate the community at large to change its values, knowing that it would take time. I would ask him to work closer with his flock in the Midlands, in the North and in the Border Country that is truly depressed and sees no hope of advancement, and who resort to hedonism financed by Wonga (as you allege). The problems of British society are acute, and Wonga just tapped into the need for some economic succour that is felt by this depressed section. It is not Wonga's fault. And shutting Wonga down merely puts business in hands of loan sharks and pawn-brokers.

    There is a pervasive sense of entitlement in British society which is totally misplaced. THe empowerment of the labour force in the last sixty years has gone so far overboard that it is impossible to find British workmen who like to work. What do you expect in such a culture.

    It is very sad.

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  4. @Ravi - Oh , I would never support banning of Wonga. And you are absolutely right. The good Archbishop must work with precisely the people you mention and change the value systems. He shouldn't be sermonising on economic issues at all - but provide the moral compass on which to evaluate.

    I am all for freedom of choice, and yet I have seen at close hand how aggressive financing companies have led young people astray. I am morally conflicted with this and hence don't have an elegant , nice answer. That's why I blog about it and the rich interactions with all commenters, and especially you, give me some steer and direction.

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  5. Welcome to my world of a gazillion shades of grey. It is an exciting world, from an intellectual point of view, in which I have been living ever since I completed the first year of grad school, which was back in 1988, when many of the younger readers of this blog (refer to the comment in the previous post!) were learning how to tie their shoe laces as they were getting ready for second grade, it looks like.

    Wonga is a term that I didn't know until I read your post, but the grey you write about is all too familiar a subject. We absolutely need a mechanism to protect the weak and the gullible against the strong and the scheming. How do we achieve this? I have no freaking clue. In democracies, we try ... that is the best we can do. All the more the reason democracy needs people who can think. But, most of them do not want to ... so, we are stuck! Which is why some of us passionately watch sports to forget all these (you know who you are!!!) and I vent at my blog because I cannot rant in the classroom!

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  6. @Ramesh - Some 24 years ago, when I was financially stretched, I fell victim to a Citibank scheme called Ready Credit. It all seemed so very "yuppie" and I needed the money. But I ignored the 24% interest per month on the daily outstanding balance and very quickly got into trouble. I had to go hat in hand to friends to shut down the clock and then repaid them.

    Anyone can be taken in, is my point. And if a WIMWI graduate can fall for it - not because he did not know math but because he needed the money - what can a poor chap from up Norf do.

    Your point about gullibility is very well taken.

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  7. @sriram - Much impressed that you can deal with gadzillion instead of fifty :)

    Academics can't get away so easily as to say they have no fresking clue. Get to work Khe and research until you drop :)

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  8. Hey, it takes wisdom acquired over a life to be able to confidently state "I have no freaking clue." The whole point of education is to realize that we don't know a damn thing .... thus, as a tenured faculty, I am most qualified to declare I don't know and I don't care ... muahahaha ;)

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  9. Niraj Dhupia11/11/13

    Your recent both posts talk about the moral dilemma and have left us thinking. In my view, as long as the people take informed decisions (you can always argue what is informed and do these people really know what they are getting into!), we should leave them at their will.

    As the moment we talk about questioning these practices, the next question is what are the alternatives available? Referring to your last post, if we question the work those women are subjected to, what are the alternatives avenues available to them to earn their livelihood. In this post, if we question interest rates charged by Wonga, where else can those people get loans at the time and with the speed they want.

    Secondly, what may be immoral / unethical for one may be perfectly acceptable to another. We think carrying 80kgs of weight on their back is a torture, what if those women got used to it and don’t find it undoable? Pain and physical capacity are personal to one and so is the definition of luxury and necessity. We may find taking loans at exorbitant prices to meet lifestyle requirements ridiculous, what if they find it absolutely fine? If it was such an issue, they won’t be doing it!

    I would like to sign off by saying if people are doing things at their will, where they are not forced to something and they know what they are doing, they should be allowed to stick to their chosen path provided it is not harmful to the others and society.

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  10. @Niraj - I can perfectly understand your position. My very own has long been close to this.

    However the problem is whether there is true free will here. Lack of any other alternative is pushing the women to do this. Similarly, the credit situation is exploited by aggressive marketing against those who are vulnerable for a variety of reason. We can say that freedom has both sides to it, and it is your own duty to not be vulnerable, but that is difficult to do under all circumstances. Take the case of kidney donation - a racket in many parts of India. Lots of people do it on "free will", to get some money. We would however baulk at that practice. I do not have an elegant alternative - I am just finding it difficult to reconcile morality with freedom.

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  11. @Ramesh: - Let me quote the well-known philosopher Paul Simon to you.

    "In the night my father came to me/Held me to his chest/He said there's not much more that you can do/Go on an' get some rest".

    This was in a song called "Maybe I think too much" in the 1984 album "Hearts and Bones"..

    We all need to take the world as we find it. So rest easy my friend.

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  12. @Ravi - Wise words.

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  13. @Ramesh- the record was a commercial disaster but it had some beautiful music. Listen to the masterpiece on the album "Rene and George Magritte with their dog after the war". Full of inside references, to modern art, and to literature.

    But then I digress onto my most favourite past-time (other than the little tyke) - music.

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  14. I think these issues are troubling because while we couch the victims' actions as driven by free choice, we know that they face a very different choice set from our own and can we call it free will when people are forced to choose between a rock and hard place. Society has always been unequal and just because we cannot individually do anything about it, should we rationalize it and move on?

    I had to comment in order to balance the skewed demographics here because Sriram's comments to your previous post seemed to be going to your head :)

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  15. @J - Absolutely right. You put it better than I could. The choice is really between the rock and the hard place for lots of people.

    Ha Ha. Yes, occasional delusions are good for the soul !! And my demographic repartee remain true - see that brought your comment too :)

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  16. @dickie26/11/13

    @Ramesh: Since Wonga sponsor my beloved football team, Blackpool FC, I declare a conflict of intetest here. However I thought your title referred to the pre-season friendly between Blackpool and Newcastle Utd, who share the same sponsor - the so-called "Wonga Derby". As the commentator put it: "it may be a friendly, but you know by their shirts that both teams will be giving 5000%!"

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  17. @Dickie - Thanks for coming and leaving a comment. Ha Ha - Yes, the title would have been more appropriate to the Wonga Derby, but even though I am a something follower of English football (was a closer follower in the days before the Premier League), I really had no clue that such a Derby existed :):)

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