The worry that is Wonga

Posted on September 20, 2013


Wonga. It’s a word that arrived on the South Africa media printscape in the wake of the abortive Simon Mann coup planned for Equatorial Guinea in 2004. Wonga — cash — was what former British premier Margaret Thatcher’s arms dealing son, Mark, stumped up to help finance the coup, an act that resulted in him leaving South Africa, guaranteeing never to return.

Actually, it’s an old Romany — Gypsy — word for the embers of coal and a word that shifted across languages at a time when coal in England meant money. It seems to have been taken up, especially by the British military, in much the same way that words like chai (tea) and wallah (servant) were adopted from the Indian raj.

So it was scarcely surprising that a money lending company should latch onto the term as a synonym for short-term loans. “Got any wonga left? Fix you up on pay day.” This is a fairly common cry, whatever the terminology used, to workmates from fellow cash-strapped factory, shop or council workers, let alone soldiers.

It is also a common cry, especially in these days when lower paid workers, whether in Britain, Brunei or Bloemfontein, find that their earnings buy less today than they did five or ten years ago. But the use of the term, wonga, was British and so it was that
the commercial version of Wonga was born in the former imperial centre.

And Wonga, very much in capital letters, arrived with a vengeance in South Africa this year. Not in terms of an inflow of cash, but in a manner that has trade unions and social campaigners deeply concerned.

As well they might be. Because the Wonga that has arrived is the British-based company that heads what are, in Britain, called “pay-day lenders” — and widely held to be among the most ruthless exploiters of the poorest and most vulnerable of income earners. They are the legal mashionisas, the legitimate face of the loan sharks who have been blamed in large part for the tension in South African mining communities.

These are companies that have capitalised on the simple fact that many lower income earners now find that their pay packets no longer buy as much as they did; that they are often “caught short” before the end of the monthly pay day. Banks and other established lenders of money are generally not in the business of small, short term loans — and certainly do not to cater for the low paid, especially in these times of economic stress.

It is a situation tailormade for the mashonisas and for those shrewd operators who remain within the bounds of national laws. The target groups are low-paid workers, pensioners and students drawing bursaries or receiving grants.

So Wonga offers a brief lifeline to people who usually have no other access to finance. But this lifeline comes at a heavy cost even where credit restrictions exist. In South Africa a R1 000 loan, repaid in six days, incurs a cost of R234,06. This includes interest and fees, and amounts to a repayment rate of nearly 24 per cent. On an annualised basis, this could amount to 1 400 per cent.

In a series of television ads in South Africa, Wonga is clearly targeting pensioners, with a cartoon ad that features three elderly characters that admire the fact that one — significantly, the only man in the trio — knows how to raise money from Wonga on line. From a commercial viewpoint, this targeted advertising makes sense, because state pensioners in particular often find it difficult to make their R1 260 stretch to month end.

And, as this column has pointed out in the past, this seemingly usurious rate is legal under a National Credit Act that was supposed to stop money lenders from exploiting the poor. But, compared to the situation in some other jurisdictions, South African borrowers are fortunate.

I am currently in London, in the land where Wonga was born and where there is no similar restriction on interest rates. This is where Wonga made its rapid inroads into the pay day lending field.

Here annualised interest rates of more than 17 000 per cent have been recorded — and have caused widespread anger. So much so that the Labour Party controlled Brent council in London, backed by local trade unionists, this week announced plans to block publicly available internet access to these lenders.

In Brent alone there are more than 5 400 computers available to the public and to council workers. “Brent will not stand idly by while these legal loan sharks grind down those in need,” says council leader Mohammed Butt.

Last week, Unite, Britain’s biggest union, revealed how the “pay-day debt spiral” is operating. A survey by the union shows that members borrowed an average of £200 (R3 000) in “Wonga week” in March last year, and that this had risen to £660 (R9 900) by last month.

The plan to ban access is shared by Brent’s neighbouring Camden council and many universities throughout the country have banned “pay-day loan” advertising on campuses. But other, less costly, forms of loan are not readily available and the unions have not, so far, stepped into the breach.

But they could. Unions have, in the past, established co-operative credit unions and the stokvel concept — effectively a rotating credit union — could be adapted. The Church of England moved to establish a credit union in July this year after the archbishop of Canterbury mounted a moral high horse to condemn lenders such as Wonga.
He provided an example for South African unions. But also highlighted a danger: like the church, many unions have investment companies. And it subsequently transpired that the church had an indirect financial interest in Wonga.

Similar embarrassment has occurred with unions and their investment companies. Which should make stronger the argument that all labour movement investments should go only to the direct benefit of workers in areas such as loans, bonds and housing.