Feeling a bit loan sharkish today?
How would making a profit by lending it to people at 39.99 per cent sit with your moral values? What about 28.7 per cent? Would rates like those make you feel a little bit… well… loan sharkish?
Both are rates on loans made by investors through Harmoney, the country’s largest peer-to-peer lender.
Harmoney is essentially an online matchmaker between investors and borrowers.
It takes loan applications from borrowers who want cash for things like debt consolidation, holidays, replacement cars and home renovations, and decides whether the would-be borrowers would be able to repay. It then decides what interest those borrowers should pay on their loans.
Each approved loan is then presented to investors – often ordinary folk with a bit of money to invest – and, if they like what they see, they can supply funding for the loan in $25 chunks.
That generally means each Harmoney loan is funded by multiple investors, which each end up with portfolios of chunks of loans. The riskier Harmoney loans earn more, 20 per cent, or even 30 per cent.
I spoke with a Harmoney investor recently, who told me he steered away from the really high interest loans as he didn’t want to feel loan sharkish.
The phrase loan shark implies more than just high interest. When I hear it, I hear knuckles cracking and the sound of a baseball bat being menacingly tapped against the leather-gloved palm of the loan shark’s hand.
Nevertheless, like the investor, I think I would baulk at funding a loan at that rate, but then with Harmoney investors get the choice of which loans they fund.
Through other investments, the moral side of investing can be far less visible.
Take KiwiSaver. Most large KiwiSaver funds invest in a mix of shares, bonds and cash. Some of the companies whose shares those funds invest in may not be ones all the funds’ investors would feel completely happy about.
Take two subjects as polarising as soft drinks and gambling. Soft drinks have contributed to an obesity epidemic and grim mouthfuls of teeth in poorer bits of town, and gambling is
something some feel pretty poorly about.
But Coke and gambling companies like SkyCity are in many, many KiwiSaver funds.
Sure, you can choose a socially responsible investment fund, but even that’s complex. You’ll may find they won’t invest in companies that don’t infringe your personal moral code like alcohol-makers.
Even less transparent is a term deposit at a bank. Who knows what criminals, ex-criminals, brothels, online porn businesses and polluters your bank is banking?
We are all moral beings, and have to make moral choices within the contexts of the society in which we live.
Our society demands we save and invest or face a miserable retirement. I respect an investor who makes conscious choices to avoid investing in things that make them feel loan sharkish.
Their moral money stance beats that of the committed antismoker who unwittingly makes money from British American Tobacco through their KiwiSaver fund.
Would lending money at nearly 40 per cent for profit make you a loan shark?