While the UK press was preoccupied this week with the latest addition to the royal family, an affair that was quickly dubbed ‘God versus Mammon’ also got attention.
The new Archbishop of Canterbury, Justin Welby, recently announced that the Church of England (CoE) intends to confront payday loan companies that impose excessive rates of interest on borrowers. He singled out for attention the high-profile company Wonga, which has advertised widely since it was set up in 2007 as a UK web-based short term loan company.
Welby, who has previous experience in the world of commerce having worked in the oil industry for 11 years earlier in his career, said he aimed to put an end to Wonga and other payday lenders. He had even discussed his ambition with Wonga’s chief executive officer (CEO), Errol Damelin. The latter, who moved to the UK from South Africa, started out as an investment banker advising entrepreneurs on business start-ups and also formed a business called Supply ChainConnect.
Wonga has predictably thrived in the economically-straitened era that followed the global crisis five years ago. Charging an annual interest rate of 4,200%, the company has expanded to the extent that it is now valued at £384m and in May announced that its loan service would be extended from cash-strapped individuals to include small businesses.
When Welby met with Damelin, in the course of “a good conversation” he told the Wonga CEO “We’re not in the business of trying to legislate you out of existence, we’re trying to compete you out of existence.” Good as his word, earlier this month the church launched its own credit union to offer short-term loans with moderate interest rates to clergy and church staff. Welby also announced that he would invite the UK’s 500 financial co-operatives – whose interest rates are far less punitive than Wonga’s – to use church space to access more customers. Church members who possess financial skills could also be encouraged to put in voluntary work with these institutions.
The story subsequently had a new twist when it transpired that the COE holds an indirect stake in Wonga via its pension fund. The church’s £5.5bn investment portfolio includes a stake in US venture capital firm Accel Partners, which provided some of the capital for the online lender’s launch. In a radio interview, the archbishop said that he was annoyed to learn of the holding.
“It shouldn’t happen, it’s very embarrassing, but these things do happen,” said Welby. “We have to find out why and make sure it doesn’t happen again.”
At only £75,000, the amount involved was trivial, but the potential reputational damage greater. As Andre Spicer, business school professor of organisational behaviour at Cass Business School noted, the revelation exposed significant gaps in the CoE’s ethical investment policy.
“Probably the most surprising was the under this policy, the Church’s fund can invest in a company which holds up to 25% investment in the sin industries – such as porn, gambling, or pay-day lending – and 10% in weapons, said Spicer. “These revelations will spur change in the policy. But they could mean the Church loses some of the moral authority which its leader is currently trading on in his mission to reform the industry.
“The second big risk comes from complexity. The Church is certain full of smart people, some of whom have significant financial acumen. But contemporary financial markets are exceedingly complex. Recent research suggests it is almost impossible to identify who owns which shares in the UK economy. This means despite the good bankers of the Church trying to locate all sinful investments on the Churches balance sheet, it will be almost impossible.
“The result is that diligent seekers of sin-stocks will always be able to find something untoward amongst the Church’s investment. Getting more involved in the financial markets is likely to bring these complexities into greater public focus.” Spicer concluded that any forays into financial issues should remain clearly connected to the purpose of the Church and what it is good at doing – otherwise it could fall prey to the danger of ‘mission creep’ in which an organisation’s attention gets diverted away from its core role.
Welby admitted that the CoE’s investment ratios are set by the church’s ethical investment advisory group, from which he is independent. He has, nonetheless, pledged to lobby for a change to the guidelines, so that the Church’s investment are free of any taint through being linked to activities such as gambling and pornography, however minor.
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