Chuka is a card, isn\’t he?

Chuka Umunna, the shadow Business Secretary, told The Daily Telegraph Wonga\’s move was \”a damning indictment\” of the British banking system and the failures of the coalition Government to get cash to successful firms.

\”Look at the rates of interest Wonga is charging. This is not cheap money,\” he said.

\”It is such a damning indictment of the failure of Government to get the banking sector working that an outfit like Wonga feels it can step into this market and that there will be a plentiful supply of customers.\”

New entrant into the market, offering sorely needed, as Chuka says, business credit. And Chuka complains. Presumably because it\’s not one of Chuka\’s ideas that the problem be solved by a new market entrant.

What he should be doing of course is applauding the market entrance: and urging other firms to do so too.

14 thoughts on “Chuka is a card, isn\’t he?”

  1. So Much For Subtlety

    What he should be doing of course is applauding the market entrance: and urging other firms to do so too.

    Let me guess …. it does not employ his friends to give money to some other of friends?

    I am sure that is totally co-incidental and his dislike is based on sound economic reasons. Clearly what we all need is another Quango to do the same sort of job, only better.

  2. if there are such great profits to be made in the sector then it should be crowded with new entrants and prices should fall as a result. As new entrants are limited then it suggests a) that the levels of interest charged by Wonga (which seem to be what Chuckie is moaning about) are necessary to cover the risk of lending to small businesses right now and/or b) that banks are trying to comply with the contradictory government demand to improve their capital position by *not* lending to people and companies. Maybe Chuckie’s magic money-shitting unicorn will arrive and spray financial feculence over the SME sector in the same way as Labour expect it to over Govt finances

  3. also: and/or c) regulation is preventing new entries to the market by imposing overly-onerous demands

  4. Statistically speaking, how many of todays small businesses will still be here in 12 months?

    1 in 5? 1 in 4? more? less?

    And what about if we take away all of those that are solvent enough not to need £10k of stop-gap funding, and then those that do need such funding but are deemed credit-worthy enough to get it from a bank?

    Now what’s our survival forecast? 1 in 3? 1 in in 2? Less?

    I’d want a serious rate of return on my money if I was lending to that particular population. If Chuckie is so confident that they’re a sound risk at traditional lending rates then he can put up a hefty slice of his own wedge before he gets the chance to put up even a penny of mine.

  5. And the Daily Mail reader looks at the 4,200% interest rates and calls them loan sharks. Whilst not taking into account that it is 4200% APR, a method for comparing long term loans and not very short period loans.

    In fact some people say that taking a short term loan, just week for instance, from Wonga and paying it back is cheaper than taking an unauthorised overdraft. That’s because Wonga only charge interest for the actual period of the loan and not by the month or impose any fixed overheads.

    So what’s the typical bank’s interest rate for overdrafts?

  6. There are entrants into the lending market:
    Thin Cats is one and Funding Circle is another. So demand is there and they are the the classic economic response.

  7. Doesn’t Chuka want to establish a British Investment Bank.

    Wouldn’t that be a new entrant too ?

  8. While I’m not keen on Wonga, if they provide a service business does not want, business won’t use it.
    If they do provide a service business wants, whats wrong with the idea? I’m in business myself, receiving regular payments into the bank every 2 weeks. If I need to cover a shortfall for 2 days, I’d consider a short term solution of some sort – usually my own cash but wonga is a possibility it seems.

  9. the thing about nbanks is that they charge arrangement fees, short-term alarm fees, pissed off bank manager fees….at £50 per “fee”, this can easily swamp the rate of interest on the short-term loan of £10k

  10. Frances Coppola


    The correct comparison is not with authorised business overdrafts, which are long-term credit facilities, but with UNAUTHORISED overdrafts. On which you will pay a daily fee and debit interest.

    The Wonga interest rate should be compared with the equivalent unauthorised overdraft fees + interest for the period in question. Plus of course the reputational loss and damage to credit rating etc. of exceeding an overdraft limit.

  11. @ SBML
    They can get a far better deal from a pawnbroker. Even if they don’t have their grandfather’s gold watch to pawn, they can get an unsecured loan from either of the top two pawnbrokers at less than half wonga’s APR. Imperfect competition because wonga spends a small fortune on advertising – which is only justifiable/affordable because of its excessive profit margins.
    @ Frances
    Quite, and better put that I should have done, but the figures given by A&B or H&T show that they are noticeably cheaper than an unauthorised overdraft but imply that wonga is more expensive

  12. @ diogenes
    what completely pissed *me* off and caused me to close my business account was when a new bank manager wanted to charge me £20 a year for an overdraft facility of £100 on that account in case a cheque took too long to clear, implying there was worse than one chance in five that I might default. My personal account at the same bank, with a near-perfect record, ran a four-figure, occasionally five-figure credit balance.

  13. John77

    that’s called “trying it on”. Don’t blame the poor guy – he’s only trying to squeeze as much out of you as he can. That’s his job.

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