It is not surprising that Archbishop Justin Welby believes that the terms of the high margin, high risk pay day loan sector can be transformed by the action of the Church. As an oil executive, he attended Holy Trinity Church in Brompton from where the Alpha programme – a ground-breaking education initiative - was rolled out globally, attracting close to 200 million participants. Subseqently he trained for the ministry at St John’s College in Durham University, one of whose claims to fame is to have been the launchpad of the ethical trade business, Traidcraft, which itself founded the global fair-trade movement.
Strange, then, the breadth and potential for his own striking announcement – that he wanted to ‘compete’ Wonga.com and its like out of existence – was suddenly overshadowed by a very traditional ecclesiastical call: namely, to give more local support to Britain’s small credit union sector. It was as though the experienced oil executive had for a moment been captured by a committee of earnest local community workers. Just as a revolution for the poor and cash-strapped flickered into sight, it seemed that it might slip away again.
Wonga.com has revenues of around £200 million, and the pay day loan sector accounts for a tiny £2.2 billion of the financial services industry. The small number of firms who dominate this niche command a high tec, fast decision, 24/7 business model that is especially welcome in the early hours of the morning when family financial fear of the next day can rise to fever point. By contrast, the total loan book of the UK credit union sector is just under a third of this figure. While the work of credit unions is entirely laudable, they can also be characterised by phone lines with three day response rates, volunteer credit committees that meet monthly and approaches to risk that have similarities to mainstream banks.
As is well documented, many do not have the capacity to receive new funds to lend, even when they are available. Thus if Welby’s prophetic witness is to gain traction, the Church needs its own business model which will have to be as innovative as its language, more cost-effective than existing market entrants and as strategically focused as its new-found ‘competitors’. Examples of a possibly radically bold response from an institution with access to the cream of the World Economic Forum and the World Social Forum are everywhere if only Lambeth Palace looks out globally.
For example, in 2006 Vienna’s Erste Foundation became increasingly concerned at the economic vulnerability faced by Austria’s 40,000 citizens who had been refused mainstream bank accounts. The lack of an account drove up utility, insurance and other costs and put them at greater risk of being the subject of theft. The foundation gathered a coalition of Church, business and other volunteers to launch a bank for the unbanked using mainstream banks as branches in the evenings, then opening its own retail units before partnering with regional savings banks.
Irrespective of credit history, customers of Die Zweite Sparkasse, as the venture is now called, gain access to a checking account, a debit card , low cost insurance and a circle of financial advice and other support. The bank has harnessed the goodwill of over 400 volunteers from the banking sector and taken thousands into financial stability. Not bad for an economy similar in size and population to the Kent and Essex Local Economic Partnership.
In Indonesia in 2008, the US NGO Mercy Corps International secured a £100 million grant from the Bill and Melinda Gates Foundation to buy a mainstream commercial bank and convert it into a not for profit wholesale micro-finance institution, so to enable community lenders to more creatively back the poor. The resulting Bank Andara has now catered for over a million clients and is being extended to the Phillipines. Like Die Zweite Sparkasse, it is also developing mobile, internet and other methods by which customers will gain speedy access to the business’s services.
One African social finance business has created branches from disused shipping containers and runs its technology on mobile phones linked to a central hub so slashing costs and lifting flexibility. These illustrative examples are by no means exhaustive, but something even more significant is well within the capacity of the Church of England and its allies, should they choose.
This is the vital point. As Church spokespeople have argued, they have 16,000 buildings but, more crucially, religious communities have cash flows which dwarf the pay-day sector: annual giving in Anglican parishes runs at £600 million per year.
The Catholic Church and its charities just in London and the South East control in excess of £1 billion in net assets and run a specialist investment fund at Merrill Lynch. The Salvation Army has its own bank to support social causes, and the Church Commissioners alone are a larger financial business than Wonga. CCLA, which manages many church investments, is already in the habit of making low cost credit available to Dioceses when cheaper money comes onto the market.
And this is before one considers the philanthropic might of the Jewish community and the investments of independent and evangelical congregational resources under management at multi-million charities such as Stewardship and the Methodist Board of Finance. It is no wonder someone missed the mere £75000 the Church had invested in one of Wonga’s venture capital backers. And no wonder that many think the Church is better placed to develop something far more creative to address the renewal of ‘one nation’ finance than even the government’s Big Society Bank and the nation’s existing credit unions.
As one of our last cross-class, cross-region, multi-racial institutions, the Church of England is uniquely placed to make a pioneering contribution to financial inclusion. Joining forces with other faith communities and the most ground breaking of international allies Archbishop Justin Welby now has a window to drive such a prophetic and compassionate innovation. Major banks should be fixing meetings with the Archbishop’s staff to ask how they might mobilise their skills for a fresh start for those at the bottom of the economic pyramid. Ministers at DWP, DCLG , BIS and the Treasury should be beating their way to the Archbishop’s door to offer the time and knowledge of officials. Tech, smart card and mobile phone ventures too.
Meanwhile, if every English parish, congregation and faith based charity raised a hundred pounds a month for three years, the Archbishop would have more start-up capital than Wonga had from its first two funding rounds. Diocesan, pension, and Church commission resources could then be added in for good commercial as well as social reasons.
In setting out his aspiration to free poor and cash-strapped families from the burdens of dangerous and expensive lenders by doing something more than issuing a press release Archbishop Justin Welby broke new ground. He now needs to make sure fresh hope is not forced into wineskins that are by no means fit for the possibilities he could facilitate, or are constrained by the uneven geographical spread of financial skills, knowledge and experience in localities to date. The prophet needs to urge his people on to something greater still, just as Alpha and Traidcraft did before him.