Wonga saved from insolvency by £10m bailout
IT IS known for handing out loans with eyewatering interest rates. But payday lender Wonga has had to call on its own financial backers for an emergency cash injection to save it from going bust.
The London-based company has raised £10 million in equity funding from its existing investors, preventing it from going under. The firm sparked controversy when it was criticised for profiting from the misery of the poor by charging sky-high rates on shortterm loans.
Wonga’s financial woes have been caused by a surge in compensation payouts related to loans dished out before 2014 when new rules were introduced to clamp down on payday lenders.
The rescue funding values Wonga at just over £20 million, Sky News reported.
It marks an extraordinary fall from grace for a company which once had ambitions of floating on the stock market in New York for close to £800 million. Backers which put up more cash in the funding round included the technology investors Accel Partners and Balderton Capital.
The whole payday loan sector has been hit hard by a cap imposed by the Financial Conduct Authority on the cost of its short-term loans.
The changes have pushed Wonga into the red for the last few years. The business, which has around 500 staff, said in a statement that it had seen a ‘significant increase’ in claims related to loans taken out before 2014 and had therefore sought more funding from shareholders.