Short-term lender Wonga’s earnings treble as bank cash dries up

Many of Wonga’s users have had difficulty obtaining short-term credit from the mainstream banks.

The group’s net income rose 269 per cent to £45.8m with revenue growing at the same rate to £185m.

Wonga, which offers individuals short-term loans of up to £1,000, has faced accusations that its annual percentage rate (APR lending rate), listed on Wonga.com as 4,214 per cent, takes advantage of the financially vulnerable.

Chief executive and founder Errol Damelin said criticism against the company is unjust because the loans are not meant to be taken out on a long-term basis. “It is not about the desperation of customers,” he said.

“We reject about 60 per cent 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,” he added.

The short-term loans 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 provided in 2011 quadrupled to nearly 2.5 million, meaning Wonga has now provided more than six million loans since it launched in 2007.

The company, 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.

Nearly 1,000 people are downloading a Wonga iPhone app every day.

The company launched a credit service for small businesses in May and Mr Damelin said it is hoping to fill a gap in the market from a lack of lending by mainstream banks. High street lenders are shrinking their balance sheets to meet regulatory requirements.

Wonga is offering loans of £3,000 to £10,000 to companies for period from one week to 52 weeks.

“Very often for small businesses that is all that is needed, but they need it quickly,” said Mr Damelin.

“Most small businesses go to the wall because of cash flow problems not P&L problems,” he added.

Wonga said that its fully automated and real-time risk technology processes thousands of pieces of data to make instant and “objective lending decisions” in seconds.

The company claims to be the first in the world to fully automate the lending process.

Approved loans are usually paid into bank accounts within minutes.

Wonga said it is “highly selective” about the people and businesses it helps.