Unaffordability of Borrowing by the Poor

Article / Produced by TOW Project
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Ideally, market-rate finance is a blessing to both borrowers and lenders. This is similar to all kinds of commerce. Producing and selling all kinds or products and services is meant to benefit both buyers and sellers. But, there are times when people need the product or service but cannot afford to buy it. This is as true with finance as with food, shelter, electricity, health care, or any other good. People may need access to money who may not qualify for credit or who may be offered only unaffordably high interest rates. As with any other product, when this happens it is no longer a commercial transaction, but a subsidy, transfer, or gift. We don’t usually expect that producers will sell their goods and services at a loss or give them away for free. Instead we depend on donors, aid organizations, or governments to subsidize or purchase and donate items to those in need. Yet at the same time, we do expect, or at least hope, that those who have in abundance will be generous.

Finance is similar to any other sector in this respect. The Bible commends generosity in finance—

If any of your kin fall into difficulty and become dependent on you, you shall support them. Do not take interest in advance or otherwise make a profit from them. (Leviticus 25:35-36)

If there is among you anyone in need, a member of your community in any of your towns within the land that the Lord your God is giving you, do not be hard-hearted or tight-fisted toward your needy neighbor. You should rather open your hand, willingly lending enough to meet the need, whatever it may be. (Deuteronomy 15:7-8)

—much as it commends generosity in goods,

In reply he [John the Baptist] said to them, “Whoever has two coats must share with anyone who has none; and whoever has food must do likewise. (Luke 3:11)

Generosity is important. But, markets with prices are likely not the best way to show generosity to family members (“kin” in Leviticus 25:35) and needy people. If we consider the grain market we see that God created the foundation for grain markets in that we are social, not everybody is equally skilled to grow grain, grain does not grow equally well everywhere, grain cannot be harvested every day of the year, grain is nutritious and our bodies cannot ingest enough grain at the time of harvest to last until the next harvest. The Bible does not contain a general prohibition on buying and selling grain. However, the Bible does encourage us to not hoard grain and to give grain away to the poor, the widow, and fatherless (Leviticus 19; Luke 12:16-21). The Bible has similar teaching about financial resources as we have seen above. There is no biblical dissonance between allocating most financial resources via markets with a price (interest rates) as intended by God in his creation design, and also sharing some financial resources freely (zero interest rates) with family or the poor. Both cases can show love to others. To those who have productive opportunities for money, lending with interest can be love. Lending interest-free to family and the poor who have not other access to funds can also be love.

In general, the fact that finance deals in money, rather than goods and services, does not give lenders a greater obligation to do charity than other businesses and institutions. In fact, any business that ceases to operate profitably is actually destroying the value it is meant to bring to society. As we have seen, the foundations of finance include its benefit to lenders as well as to borrowers. Whenever a financial institution gives away money, it deprives its own investors of some of their anticipated return. Given that the largest investors today are pension funds,[1] charity to borrowers comes largely at the expense of retirement income to pensioners. So, as in other industries, large-scale charity is not the role of finance.