Short-term loan provider benefits from surge in applications as number of loans provided in 2011 quadruples to 2.5m
Short-term loan provider Wonga.com trebled its earnings last year, benefiting from a surge in applications by cash-strapped Britons, many of whom have had difficulty obtaining short-term credit from mainstream banks.
Net income rose 225% to €45.8m (£37m) with revenue growing at the same rate to £185m, the company said on Sunday.
Wonga offers individuals short-term loans of up to £1,000, which are intended as an alternative to traditional lines of credit such as credit cards and personal loans, and as a means of avoiding unauthorised bank overdrafts.
The number of loans the company provided in 2011 quadrupled to nearly 2.5m – Wonga has provided more than 6m loans since its launch in 2007.
The firm has faced accusations that its annual percentage rate (APR lending rate), listed on Wonga.com as 4,214%, takes advantage of the financially vulnerable.
In an interview with Reuters, Wonga’s chief executive and founder, Errol Damelin, said the criticism was unjust because the loans were not meant to be taken out on a long-term basis.
“It is not about the desperation of customers. We reject about 60% of applicants. This is about a service that is important to people because people do run out of cash from time to time. That is the reality of the world and it is about delivering it in a way that people like,” said Damelin. Damelin told the Guardian last month that Wonga was not a “legalised loan shark”.
Wonga, which guarantees borrowers will receive their money within 15 minutes of approval, said 10 times more customers had taken out loans via their mobile phones in 2011 and nearly 1,000 people were downloading a Wonga iPhone app every day.
The company launched a credit service for small businesses in May and Damelin said it was hoping to fill a gap in the market resulting from a lack of lending by mainstream banks, which are shrinking their balance sheets to meet regulatory requirements.
Wonga is offering loans of £3,000-10,000 to companies for periods from one week to 52 weeks.
“Very often for small businesses that is all that is needed but they need it quickly. Most small businesses go to the wall because of cash flow problems not P&L problems,” Damelin said.
Last week, Wonga defended its fraud-checking procedures after it emerged that some consumers were being billed for loans they had not taken out. One major bank said it had seen a “significant increase” this year in instances of criminals applying for loans from Wonga using stolen account details.
The company insisted it has “a zero tolerance policy on fraud”, and that cases of criminals targeting it were “extremely rare”.
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