Many to blame in the consumer debt trap

If you want to dodge the loan sharks that charge exorbitant interest rates, don't borrow in the first place says Nima Abu Wardeh.

Credit is not a right. The sooner we remember this the better.
It seems that a growing number of people are of this opinion, too, if the cyber-discussion around being in debt, writing it off and the opportunists who profit on the back of it is anything to go by.
The latest catalyst for this conversation is Wonga, the United Kingdom's biggest payday lender, writing off £220 million (Dh1.29 billion) worth of loans last week.
This wiped the slate clean for 330,000 people. Another 45,000 will be allowed to repay what they borrowed minus interest and charges. These are people Wonga should never have lent money to in the first place - because they simply could not pay it back.
Payday loans are short-term, small and unsecured debt. And they are big business. Last year Wonga's profits halved to "only" £39.7m - that was after it was made to pay out £10m to customers it threatened with fake legal letters.
This year it's expected to break even despite the writing off of debt to one in five of those it lent to last year. You can safely extrapolate that the interest charged for the privilege is exorbitant.
These kinds of loans are often the last - or only - resort for people who cannot live within their means and cannot borrow from higher up the lending chain - from banks for example.
So is the ruling against Wonga a triumph for the vulnerable and a slap in the face for loan sharks in disguise?
While you think that question through, here's another: is this a triumph for protecting the vulnerable or does it reward the irresponsible?
The latter question, for me, is the bigger issue. There will always be someone or somewhere that will lend money - for a fee.
But how about not being in need in the first place?
Yes, there are people who use every dirham wisely and still genuinely cannot afford life and its basics. But there are also mounting numbers of people who are in need because they choose instant gratification, have a sense of entitlement, and simply do not think about consequences let alone plan for the unknown or the future.
These are the people I'm focusing on.
How many of Wonga's 375,000 beneficiaries of its money, and then its debt cancellation, are people like this?
Money struggles are not new. What's new is the scale of the problem and how we're becoming indebted.
Collective debt cancellation is not a novel thing, either. It was done periodically in Mesopotamia for more than 1,000 years.
There, peasants worked government land. They had to pay a portion of what they harvested to the state as rent. These peasants bought and worked their own land, too, as well as livestock, tools and so on.
When times were good, they would reap the rewards of their harvests. But when times were bad they accumulated debts, including loans from high-ranking officials and the rich folk of their time, who would seize the land if they defaulted (sound familiar?).
If the peasants didn't pay back their debt, they and members of their family risked becoming serfs or slaves.
But before living conditions got too bad, the authorities periodically cancelled debt and restored peasants' rights.
Creditors that had taken possession of property under pressure had to give it back or repay its worth in full or risk the death penalty.
This meant that peace and social order were reestablished by decree if they were too off-balance.
The system did a lot to limit the rise of inequality. This was no utopia, oppression did exist but it was kept from becoming worse. And it's a system that worked. When debt cancellation stopped, things changed - land was taken over by big private landowners, debt and enslavement were on the rise and a large portion of the population migrated elsewhere.
I'm sure you can substitute the above with examples that reflect today's world.
One of the kings of Babylon, which ruled over the whole of Mesopotamia, was Hammurabi. He is known for a set of laws called the Hammurabi Code that proclaimed "the powerful may not oppress the weak; the law must protect widows and orphans . to bring justice to the oppressed".
The debt forgiveness of Mesopotamia went to great lengths to see that there were no loopholes and that rights were upheld and that those in need benefited. These principles need to be revived. I suppose the system was easier to police then - the indebted peasants were usually still working the land that was now owned by the creditor. And I'm sure there were no consumer goods lying around in lieu of cash to pay down debt.
It's one thing to be in need because society and the system has failed you. Another if it's because you cannot handle the money in your life.
Here's an idea:
Don't have? Don't spend.
Nima Abu Wardeh is the founder of the personal finance website cashy.me. You can reach her at [e-mail]
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