If ever proof were needed that austerity hits the poorest hardest it is the number of people forced to borrow from moneylenders.
A Central Bank report shows that 360,000 Irish residents have borrowed from licensed moneylenders in the past year, most of them having been refused credit by other financial institutions.
Almost one third use the loans to buy clothes, electrical goods, and items of hardware for the home, while 23% use them to fund family events like First Communions.
The highest annual percentage rate charged was 288% while 125% was the average.
The tragedy is that it is the poorest of the poor who tend to resort to moneylenders simply because they have no alternative.
However, the so-called new poor — formerly middle-class — are also going to moneylenders, the report indicates, with thousands going to moneylenders to pay their sports club fees.
Shocking though it is, the Central Bank report barely scratches the surface of what is a festering sore in our society. The study only dealt with legal moneylenders who can, legitimately, charge up to 290% interest on loans.
There are no figures available as to the number of people using illegal moneylenders who, in all likelihood, charge even higher interest rates, so the real scale of the problem is hard to estimate.
As Fine Gael Dublin South Central TD Catherine Byrne put it, “Those most likely to turn to moneylenders are low-income families who are already on the margins, and who feel they have no prospect of accessing money from traditional lenders.”
This report will come as little surprise to the Society of St Vincent de Paul who see the effects of grinding poverty on a daily basis.
“Our members tell us that as austerity deepens, the use of licensed moneylenders in their communities is growing, and this is a worrying development,” writes John Mark McCafferty in a blog as part of the SVP online campaign Make Your Voice Heard.
The SVP, while acknowledging that the purpose of the report is to assist future policy, criticises it for being too benign and for failing to include any recommendations for further regulation.
According to Brendan Hennessy, spokesman for the SVP’s social justice and policy team, the Central Bank has exhibited worrying levels of acceptance of high cost loans for consumers and the report offers no critical analysis of moneylenders.
Earlier this year, Social Justice Ireland published a document showing the negative impact of long-term austerity on the poor.
The report, The Distributional Effects of Fiscal Consolidation, shows that austerity has had significant distributional effects by raising inequality, decreasing wage income shares, and increasing long-term unemployment.
The Central Bank says has pledged to “take action where necessary to protect borrowers’ interests”, yet all it seems to be doing is monitoring misery rather than combating it. The banks are still not functioning as they should and the credit unions have adopted a more risk averse mode, as they, too, have been bruised by the recession.
In this respect, there must be a role for community-based lenders like the credit unions to engage in micro lending of small amounts of money for small periods of time.
This would require some form of government guarantee but, in this instance it would be a matter of tens of thousands of euro for the poor and not tens of billions for the banks.
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