The great financial crisis (2007-09) sparked all manner of new lenders as the high street banks cut back their lending. We have seen the birth and expansion of peer-to-peer organisations which match depositors and lenders on the web; crowd-funding where like-minded investors club together to fund small breweries or films, and most contentiously the payday lender.
In the Great Recession, payday lenders, who help the less well-off make ends meet before the arrival of the next pay cheque, sprang up on the nation's high street. They sat alongside discount retailers like Poundland and B&M - a new take on the austerity economy. Arguably the payday lending shop, despite the punishing interest rates charged, removed the moneylenders from the back streets, where they were backed up by brutes wielding baseball bats.
Much disparaged payday lender Wonga, founder by two South Africans, Errol Damelin and Jonty Hurwitz, took matters a step further. Damelin, a single-minded former Israeli paratrooper, brought groundbreaking digital skills to an ancient business activity. Payday lending was combined with cutting-edge Israeli know-how and technology to provide a different kind of instant moneylending.
One would be hard put to understand this from some of the recent media coverage that has painted Wonga as the devil incarnate following a finding by the regulator, the Financial Conduct Authority, that between 2008 and 2010 it sent out 45,000 letters in the names of non-existent lawyers demanding payment of arrears.
Clearly, the use of fake legal credentials was stupid and unacceptable. The legal profession is in high dudgeon and the City of London police have been persuaded to re-open an investigation that previously had closed.
Wonga is not drawing on the most vulnerable
Once a witchhunt is underway, it is hard to stop, even though most of us are subjected to such faux legal pressure on a regular basis in our everyday lives, whether we are paying parking fines or utility bills.
Damelin, who stepped down from Wonga before the storm over "legal letters" broke late last month, is a highly focused figure. When I joined him for lunch as Wonga was moving into take-off mode, he persuaded a reluctant chef at one of London's most fashionable eateries to whip him up a large bowl of Israeli salad, without the dressing, because he didn't fancy anything else on the menu.
What he explained was that Wonga's model was different in several vital respects to other payday lenders. Firstly, it would only lend to people who already had current accounts at banks and had signed up for electronic banking. This cuts out the least well-to-do who do not have conventional bank accounts.
Secondly, his customers needed to be cyber-savvy and own mobile devices such as smart phones and tablets so that they could access Wonga's website and apps electronically.
These two requirements meant that Wonga, unlike the other payday firms and back street money lenders, were not preying on the poorest of the poor. The point being that unlike other payday lenders Wonga is not drawing upon the most vulnerable groups in society. It is providing an instant cash service to people who need money quickly.
The reality is that if Wonga customers repay their loans rapidly the cost is cheaper than that of an unsecured overdraft at the bank where the charges rise exponentially. It is only when loans are not repaid on time and the interest charges start to ratchet up that they rise to the ghastly 2,689 per cent APR seen in some headlines.
That is terrible but not worse than well-established players like Provident Financial (a publicly quoted company).
Much of this will make the Jewish community uncomfortable even though most publications identify Wonga's founders as South African rather than anything else. The Bible is extraordinarily tough on usury, and advocates debt forgiveness. And Jews in Britain have suffered, down the ages, from the stereotypes offered by Shakespeare and Dickens, two of the nation's most lionised literary figures.
It is highly unfortunate that Wonga is now being tainted as an alleged criminal organisation because of the legal letters. Better perhaps if Damelin and friends had chosen to use their brilliance with computer code in a less controversial area. We must be alert to demonisation, drifting into antisemitism.
