Sunday, March 16

Access to Credit should be recognised as human right

This post made me think. Nobel laureate Dr Muhammad Yunus of microcredit fame has said that access to credit should be recognised as a human right. Now, there are two aspects to this argument

1. That the state has a right or a duty to provide credit to its citizens which is something that I do not agree with. This habit of looking to the Government for everything and handouts is wrong. This is at par with the argument that there is a fundamental human right to employment. No, there is no human right to employment. Nobody owes you anything for employment, that is your own responsibility. That is not to say that people who are clearly unable to work should not be helped (such as physically disabled...) but generally, there is no right to work. Similarly, there is no right to credit or even access to credit. But the flip side is true and more on that at the bottom

2. That credit is the only thing which is stopping people from leading economically productive lives which is again debatable. Just having the credit available does not mean that people will take the credit and suddenly become entrepreneurs. That is not necessary, to be economically active, you can rely on somebody else having credit, or loaning out credit or relying on your own energy and being self sufficient.

But overall, it does make sense not because of the call for the right but because what I know that poor people are poor because of governments and not despite them. Governments actively connive in removing access to credit to their citizens. That is actually true. Let us look at the ways it is done. First by giving subsidies and deficit financing, they soak up funds in the market which can be given as credit to needy people.

Second by having inefficient means (such as corruption, bureaucracy, etc. ) even well meaning ways of passing on credit are bad (such as rural work schemes or forcing state owned banks to make loans cheaply such as in Iran). Third is by not having good land and other asset registries (like patent systems) or good land based infrastructure (such as rural markets, good deep secondary patent and land markets, good legal systems where land and asset rights can be protected, exchange and markets where these can be traded..... (see for example, work done by Hernando de Soto)

But, food for thought indeed! Giving people credit is a laudable aim and Governments can do worse than do that. Specially for countries like Iran, Bangladesh and India, the dead hand of the state has to be removed or at least made efficient in asset discovery and credit generation.

But then, remember that you CAN go too far. For example, see this. Well, you have a very simple way of getting credit, just send a text message and in 15 minutes, about $500 will land in your account. And when credit is that easy, it creates problems on the other side. I quote, "Swedish authorities, who are so concerned about the out-of-control debt build-up among some young and low-income Swedes that they in January banned interest payments superior to the cost of the initial loan.The main danger of the new lending system is that it gives people "the possibility to get money very, very quickly, which is stimulating impulsive actions without thinking," Also lets not forget the sub prime crisis where funds were lent to people who were clearly unable to repay the loans

So yes, credit should be available but not too easily.

1 comment:

Rebel with Cause said...

Hi Bhaskar,

thank you for referring your readers to our blog. It is fantastic to learn from your profile that you work in an investment bank. You might be interested in attending the Global Vision 2000 event this weekend

Oh, and do praise your sister often and sincerely, she is obviously a quiet power behind you!