Wednesday, 7 October 2009

Any alternatives to Dogs and Vomit?

After much apocalyptic huffing and puffing last year, which involved touching each one of us for three grand a taxpayer to bail them out, UK Bankers seem to be back to business as usual. Holy Scripture (Proverbs 26:11) suggests that it is the nature of dogs to return to their own vomit, and sows, having washed, to go back out there and roll in the mud. Nick Baines reflects some of the anger and frustration many feel at all this:

Let’s get this straight. Some of my friends are bankers. I don’t have a problem with bankers getting paid for the work they do. Some bankers should get paid more than others. Big bankers should get paid big salaries. But bonuses should be rationalised and spread about the people who work at all levels of the business. How do you justify a single individual getting a one-off (almost guaranteed each year) payment amounting to many multiples of what the ordinary bank staff earn in several years? And whose money is it that they are playing with anyway?

It’s certainly a shame if a good crisis has been wasted.

One development I will be watching this year, after discovering philanthropic microfinance through Kiva, is the growth (or not) of Zopa. Billed as the “eBay of banking,” this is a microfinance site that enables people to borrow or lend directly with minimized middleman profiteering. Risks are potentially higher, but not perhaps by as much as you would think, and returns rates have held up much better than convnentional banks in the past year or so. For a small investor, there’s more flexibility and returns are substantially higher than anything you would have got last year from the UK high street with its pathetic levels of customer satisfaction, up t0 20 point differentials between bank rate and their rate, and fat markups for the fat system.

As ordinary low-risk borrowers and lenders increasingly use microfinance sites, what’s holding back change? Personal inertia — apparently disgruntled Brits are more likely to change their partners than their banks. Also Brits are not currently awash with cash, being legendarily more inclined to borrow than to save. Finally, the UK tax régime around savings income isn’t (yet?) favourable to such direct ways of saving — or indeed any ways of saving?

However, the times are a’changing, and if direct lending sites, presently a bit of a joke, develop, the Drones Club with its fat bonuses and useless customer service could be begin to experience an interesting run for our money.


Erika Baker said...

Did you ever look at MyC4? Is there anything genuinely different between that and Kiva and Zopa, and would you recommend one over the other for any particular reasons?

Having said that, did you see the article in last week's Saturday or Sunday Times on the Grameen bank, which pioneered micro loans, that seemed to suggest that their overal impact is not as great as had been hoped? Admittedly, they only looked at the impact on the local economy after 12 months, but still, there appears to be a concern whether this will turn out to be yet another scheme that does little more than make the investors feel good about themselves.

I hope that will prove to be wrong!

I would also suggest that promoting these schemes under the heading of investment or savings may not be as helpful as promoting them under the heading of aid, charitable giving etc, precisely for the reasons you list in your post.

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Bishop Alan Wilson said...


Thanks: I did check out MyC4, and it looks very interesting. It is limited to Africa, and the main advantage I had hoped for (lower interest rates) wasn't quite happening as well as I'd have hoped with the comparatively mall number of loans out. However it lokos like a really good idea, and I should have mentioned it with Kiva. Ditto Grameen which we have talked about on the Oxford BSR. I think a lot would depend on how they measured impact — total impact in dollar terms within the macro-economy would take a very long time to be significant, but impact in proportionate terms on the small business sector should be higher. I can see that these microfinance outfits are not yet all they could be. I wonder whether ahyone will ever get to do to finance what Amazon did to bookselling, or eBay to retailing...

Megaan, for the sheer joy of your having asked, and because I like the range of stuff that has caught your eye, I'll give it a feed for a week or so and see how it works out...

Erika Baker said...

I agree, the general level of interest rates on MyC4 is not as low as it could and should be.

But at least the system gives every individual lender the opportunity to set their own interest rate and thereby at least make their own small contribution to a large problem.
Maybe in the absence of a lending Amazon, this is all we can ever do?

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