Amigo has been a publicly listed company in the UK now for a year and things appear to be going well for the guarantor loans lender. In June 2018, Amigo Loans listed on the main London stock market at a £1.3bn market value. One year on, its first set of results as a public company indicate a thriving business that isn’t suffering either as a result of the rumours surrounding its lending practices or the scrutiny of the FCA. So, what does this mean for the guarantor loans industry, for Amigo itself – and what is the business planning to do about all that negative press?
Amigo Loans results
For Amigo, the first set of results as a public company show a lot to be happy about. Amigo is a guarantor loans lender, set up to provide finance to consumers who either have a low credit score or not much of a credit history. The business model works by allowing a trusted friend or family member to stand as guarantor for the borrowing for which the customer might not otherwise be eligible. Amigo’s results show that its customer numbers now stand at 224,000, up from 182,000 a year ago. As at March 31, 2019 the company had a loan book of £707.6m, a 17.4% increase year on year. Revenue across the 12 months increased from £210.8m to more than £270m, a rise of over 28%. The numbers indicate a business that is thriving, despite its impairment charge of 23.7% of revenue. And the figures come after a fairly challenging year for Amigo in which its approach to the lending market has been called into question by a number of those within it – and outside.
There is no doubt that the market for guarantor loans in the UK is currently thriving. And with Amigo going public last year there has been a much bigger spotlight on the sector. This has attracted the attention of the industry regulator and in March this year a Financial Conduct Authority official warned that the regulator would be closely monitoring guarantor loan providers. As a result, at the time, Amigo’s share price took a hit. One of the main reasons for the interest of the regulator was concern that the interest rates being charged for guarantor loans are too high. Despite the fact that borrowers are supported by a guarantor they may still be charged 39.9% to 59.9% APR with the average lender charging 48.9% APR. Christopher Woolard from the FCA also said that there seemed to be a worryingly high number of guarantors who were being called upon to repay the loans of borrowers, indicating that the loans being approved might be unaffordable.
Dispelling the myths
At the same time as releasing the yearly figures, Amigo’s Chairman Stephen Wilcke said:
“Arguably, Amigo being a publicly listed company has raised the profile of the guarantor loan product and fuelled some urban myths about us and our customers. In future we will work harder to dispel those myths and take the time to ensure our evolving stakeholder universe fully understands the service we offer.”
Wilcke made the point that the proportion of payments made by a guarantor on Amigo loans was fairly constant at around 10%. He said that the lender provides a “great service” to its customers and the number of consumers using Amigo certainly supports its Chairman’s point. Although Wilcke didn’t give much away in terms of how Amigo is going to do better at dispelling the myths that have surrounded its lending practices, he did make a point of saying that the business will be focused on engaging with the FCA to ensure that its approach, systems and processes remain compliant.
Why are guarantor loans so popular?
The main reason for Amigo’s success is that consumers are taking out guarantor loans in record numbers – so, why is that?
- A way to borrow money for those with a poor credit rating
- Some people use guarantor loans to rebuild a bad credit score – which is possible as long as all the payments are made on time and the guarantor doesn’t have to step in
- Many high street banks simply don’t offer options for credit compromised borrowers
- It’s possible to borrow up to £15,000 with guarantor loans (£10,000 with Amigo)
The first set of results for Amigo Loans indicate that the company is thriving – whether it continues to do so, or becomes another Wonga, will depend substantially on its discussions with the FCA and what the regulator decides to do next.
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