Provident Financial set to fly as inflation puts squeeze on household budgets

The high-interest lender that targets lower income groups should do well in Brexit Britain

James Moore
Tuesday 17 January 2017 10:16 GMT
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Outlook sunny for high-interest lender Provident Financial
Outlook sunny for high-interest lender Provident Financial (Provident Financial)

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Louise Thomas

Louise Thomas

Editor

Keep an eye on Provident Financial. As expected, the inflation tiger has started to roar, and more loudly than the forecasters predicted.

The price of Brexit is making its presence felt later than people had forecast, but inflation coming in at 1.6 per cent – the City was betting on 1.4 per cent – is just your starter for ten.

Prices have started to rise more quickly than expected, and they will kick on from here if the pound’s weakness continues (a good bet).

Wages are unlikely to keep up. If you work in the public sector, they’re already running behind. So people are going to get poorer.

All of which makes things more difficult for those whose households budgets may be under pressure. Which brings us to Provvie.

People feeling the squeeze are going to beat a path to its door to help spread the rising cost of occasions like Christmas, birthdays, weddings, funerals.

That comes at a price, but if mainstream lenders aren't much interested in you, and Provvie is your only option, chances are you'll pay it.

The lender has just issued a trading update, which couldn’t have been much rosier. All its various businesses, which range from credit cards to car loans, to home credit collected by agents, to, yes, payday loans, are trading in line with forecasts.

Delinquency rates are low, which is a good thing. It indicates that the company is at least lending to people who can pay back its loans.

But those loans can too easily become a crutch that people who can just about afford them start to rely upon, sucking money out of their limited budgets.

Let’s be fair to Provvie, its products aren’t completely without some level of social usefulness.

If you’re the sort of person that can’t find credit elsewhere, through having picked up county court judgements as a result of previous struggles, or just as a result of being a new borrower, Provvie’s offerings can be worthwhile.

Prove you can manage one of its appallingly successful credit cards, and you may be able to move onwards and upwards to a better value product offered by a more mainstream lender.

However, the sector's critics can quickly provide examples of people who have struggled to countermand this, people who have done without to keep up with the high cost of repayments. Or whose children have done without.

And the company's history isn't a pretty one. It's not a wonga.com, but there have been problems with the competition watchdogs and some sharp criticism from MPs in the not-too-distant past.

Rising inflation and a struggling economy do present challenges for Provident Financial and its peers. The incidence of bad loans usually rises. Regulations have been tightened up when it comes to dealing with them (good thing too).

Still, look at the share price graph over the last five years, which shows a virtually unbroken pattern of growth.

A low-waged Britain is fast becoming a Provident Financial nation. As Brexit looms, that status will be underlined.

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