Archbishop ‘embarrassed’ over revelation that church funded Wonga

The Archbishop of Canterbury said he was irritated and embarrassed after it emerged that the Church of England helped to fund the payday lender he wanted to drive out of business.

The Archbishop of Canterbury the Most Reverend Justin Welby

The Most Rev Justin Welby suggested a comprehensive review of the Church’s investment portfolio could follow, after he expressed his unease over its ties to short-term, high-cost credit firm Wonga.

He said: “I was irritated for a few minutes but, you know, these things happen. I understand the business, it’s an incredibly complex business.”

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Although the amount of Church money indirectly invested in Wonga was £75,000, out of investments totalling £5.2 billion, it has proved embarrassing for the Archbishop, who had spoken out against the payday lending industry.

The Archbishop of Canterbury the Most Reverend Justin Welby

He said: “Now, it shouldn’t happen, it’s very embarrassing, but these things do happen. We have to find out why and make sure it doesn’t happen again.”

The Archbishop proceeded to heap praise on Wonga and its management, appearing to distance himself from comments he had made to Wonga the day before, saying he wanted to “compete it out of existence”.

He said: “Funnily enough, I never took on Wonga in particular. The context was talking about the entire payday lender movement. Wonga is actually a very professionally managed company. Errol Damelin, the chief executive, is a very clever man, runs it extremely well.”

He insisted, however, that he was not backtracking from his commitment to clamp down on irresponsible lenders.

“We need to provide a proper alternative to these very, very costly forms of finance. The worst people are not Wonga. There are plenty of others much worse.”

Mr Welby said that he agreed with Mr Damelin, who in a conversation had warned that over-regulation in the industry could result in driving people towards loan sharks.

“If we try and cap interest rates and drive the legal payday lenders through regulation, people - because they’re desperate and there’s no consumer choice in a lot of deprived areas - will end up with the loan sharks, which are just a totally different kettle of fish, very much worse,” he said.

However, Mr Welby said he was unhappy that Church funds were being funnelled into Wonga and said he would seek to remedy the situation, before suggesting his powers were limited.

“They shouldn’t be investing in Wonga. We don’t think that’s a good thing,” he said.

According to Church policy, investments are allowed where less than 25% of its business is in this area - a figure he described as “probably too high”.

He said: “It is an ethical investment advisory group, I don’t have authority to tell them what to do.”

Mr Welby was unable to give assurances that the Church had not broken its own rules, saying: “I don’t know the answer to that, because I don’t know how the detail processes work in the Church Commissioner’s investment management arm.

“What’s clear is that... this is an embarrassment. We think that the payday lenders charge vastly excessive amounts for the loans they make, that there is a totally inadequate range of choice for consumers in deprived areas.”

The Archbishop conceded that it was almost impossible for the Church to make an investment that was not somehow tainted.

He said: “If you exclude any contact with anything that directly or indirectly gets in any way bad, you can’t do anything at all.”

He said the Church needed to be realistic in accepting that the “complexity of the markets means that a lot of companies get involved in things at a very small level, indirectly”.

Asked if the Church was suggesting that a little sin could be tolerable, he replied: “Sin is a bad thing by definition. Just for the record, I’m not in favour of sin.”

Signalling a potential review of its investments, he added: “I think we have to review these levels and make sure we are consistent between what we’re saying and what we’re doing.”

Mr Welby went on to reveal that some of his own staff had fallen foul of payday companies.

He told the BBC: “I’ve seen it, I’ve lived in these areas and worked in them. I’ve had staff who have got caught up in it and have had to be helped and had their lives destroyed by it. This is something that really matters to me.”

The Archbishop was asked about an apparent anomaly in the Church of England’s investment policy, whereby limited funds are allowed even in controversial areas such as pornography.

He repeated his earlier comments that an internal review was necessary, adding it was important that the Church be seen to be taking action, rather than preaching from the sidelines.

“I have no illusions about this,” he said.

“Church Commissioners have been hugely successful in their investments, but what we are trying to do is put our money where our mouth is, rather than stand from the sidelines and say to people ‘Well, you’ve got to do better’, is actually try and do something better ourselves, as part of our witness to Jesus Christ and to his love and to the way in which we live in these communities.”

The former oil executive added: “We can’t say that we tolerate bad things, but we have got to live in the real world, and living in the real world means that life is often very complicated and you can’t escape the complexity.”

In what appeared to be a sideswipe at some of his colleagues on the Parliamentary Commission on Banking Standards, of which he is a member, he said: “It’s like the Banking Standards Commission - it’s very easy to say bankers should do better, there’s no point, and we did, and I entirely support the Banking Standards’ report, but we’ve also got to be involved in day-to-day life, as huge numbers of Christians are, members of Church of England and many others, and say: how do you actually live in the reality of the complexity of life today?”

On the Church of England’s £1 billion bid for 315 branches being offloaded by Royal Bank of Scotland, he said: “They’re doing that in order to be part of creating a good bank.”

He said the Church did not fund credit unions directly because “it’s a business model that we can’t quite see how you can make work well”.

He denied the Church was not interested because there was no money to be made.

“No, it’s not that. There are reasonable returns and there are enormous returns and with a lot of payday lenders the returns on equity are so high that you have to conclude that there is something not quite right with the market.”

Mr Welby said reports suggested an annual rate of between 80% and 90% return was needed just “to break even”, while technology looked at by the Church meant this figure could probably come down to between 70% and 80%.

He said it was about sustainability, and pointed out that these figures were far below the 5,000% interest mark-up of many lenders. The Church is looking at ways it might be able to make such a system work, but it would not proceed unless it was certain it was workable, he said.

He took exception to interviewer John Humphrys’ remarks that he was adopting the capitalist argument.

The Archbishop said: “It’s not just a capitalist argument; it’s also an argument about enabling communities to fund themselves.”

He said the Church would only proceed with an alternative loans system if it could make it work.

“Now if we can’t get it right, we don’t do it. That is the answer. But it’s better to have a go rather than just to stand and wring your hands and say it’s all terrible.”

Asked if capitalism was amoral, Mr Welby replied: “I don’t think capitalism is necessarily amoral, it can sometimes be immoral, but it is not of itself immoral.”

He added: “It’s a complex world, let’s not pretend things are simple. You spend your life in a parish, we seek to worship Jesus Chris, we get it wrong plenty often - we’re fallible as well as anyone else. We don’t stand on the sidelines on some kind of great podium lecturing everyone else, that’s just not how it works.”

The Financial Times said the Church of England, which claims to have a strong ethical investment policy that explicitly bans companies involved in payday lending, has invested in Accel Partners, the US venture capital firm that led Wonga’s 2009 fundraising.

The Church has said it will conduct an internal investigation into the findings.

Mr Welby’s campaign against payday lenders was backed yesterday by Business Secretary Vince Cable, who said the Government was looking at better regulation of the industry as well as a bar on advertising high interest loans to people who can ill afford to pay them back.

Commenting on the Archbishop of Canterbury’s comments on payday lenders and credit unions, Russell Hamblin-Boone, Chief Executive of the Consumer Finance Association, which represents the major short-term lenders operating in the UK, said: “Everyone needs access to banking and credit facilities in the modern world and so we welcome any support for the credit unions, which we see as complementary to short-term lenders.

“High standards and responsible lending are our watchwords and I have recently written to the Archbishop seeking a meeting to talk about the role of alternative finance.”