Wonga and credit crunch

Perhaps I live in a peculiar place, and the bus routes nearby are not representative of London as a whole, but based on a casual observation, about half of the double-decker buses have advertisements for Wonga, a leading provider of payday or short-term unsecured loans, on their sides. Indeed, Wonga seems to be everywhere at the moment: on television, radio, online, and sides of buses.

Recent Wonga advertisements target businesses, not just personal loans targeting individuals. This must be an indication, partly at least, of the continuing, perhaps worsening, credit crunch in Britain at the moment, as businesses cannot obtain overdraft facilities or loans at a favourable rate from high-street banks. Traditional means of credit, through banks, are not available to many businesses, so there is a market for players such as Wonga. The company seems transparent in its terms, deals online and by mobile, making it somewhat less direct and embarrassing, and it apparently uses a fully automated risk assessment mechanism: it is better than dealing with loan sharks armed with baseball bats, who probably used to occupy the shadier side of this market.

I am somehow sceptical that the additional liquidity that Bank of England is planning to inject will solve the credit crunch issue for many businesses. When there is no confidence, there is no credit. A lot of money has already been pumped into the economy by quantitative easing, and money should be flowing because of the low interest rate, but it does not seem to be reaching the people and businesses who need it.