Cooking the Books: An Easy Match for Mammon
On 25 July the Archbishop of Canterbury, who fancies himself as a bit of a financial expert, said that it was his Church’s intention to drive the payday loan company Wonga out of business. He revealed that he had told Wonga’s boss that ‘we’re not in the business of trying to legislate you out of existence, we’re trying to compete you out of existence’ (Times, 26 July). The next day he was left red-faced when it came out that his Church had money invested in a venture capitalist, Accel Partners, that was one of Wonga’s financial backers.
His plan is to encourage credit unions by offering them premises in churches and expert advice from Christian businessmen. But the idea that credit unions could out-compete capitalist money-lending enterprises like Wonga is pure fantasy.
A credit union is basically a savings and loan club. People pay in small amounts of money (on which they receive some interest) which gives them the right to borrow small sums of money (on which they pay interest) when they need it. To remain viable by covering its administrative costs, the union has to charge a higher rate of interest to borrowers than it pays to savers. Basically, they are a form of bank, mainly for poor people. Ideally, they are run democratically by their members.
A payday loan company, on the other hand, is a profit-seeking capitalist enterprise specialising in short term (from payday to payday) loans at a very high rate of interest. They don’t particularly target poor people, but rather anyone in short-term financial difficulty. In fact they prefer people who have another payday coming. The money they lend is theirs (or put up by backers such as Accel Partners) – and they have to have it in the first place.
It’s all about money and getting an income from lending it, but the Archbishop didn’t offer to put up any of his Church’s money, merely to let the credit unions use his churches as their offices. Even if he had, it is unlikely that the Church Commissioners, who manage the Church’s millions, would have approved as the rate of return, though eminently ‘ethical’, would have been too low. They have to choose investments with a higher rate of return to generate the income to pay the salaries and pensions of the clergy and for the maintenance of the bishop’s palaces. They are forced to behave capitalistically too.
If the Archbishop really thinks that local credit unions, operating from churches, can out-compete capitalist enterprises like Wonga (who have the resources to advertise every day on TV) by stealing their customers, he can’t be the financial expert he thinks he is. But at least he doesn’t think banks can create money out of nothing which if true (but it isn’t) would surely solve the problem. A Church bank creating money out of nothing would easily out-compete a payday loan company which has to already have the money to lend.
The only way the Church would have a chance of driving payday loan companies out of business would be to set up its own payday loan company, charging ‘ethical’ rates of usury and sending polite, ‘ethical’ solicitor’s letters to defaulters.
You can’t stand a chance of beating capitalist businesses unless you join them but there’s no guarantee that if you do join them you will beat them, as the ‘ethical’ Cooperative Bank has found to its cost.