Minggu, 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 !!

Disqus Comments