Life, liberty and access to credit
This post comes to us from Mark Hannam, honorary Research Fellow at the Institute of Philosophy at the University of London.
John Hope Bryant says that “financial literacy is the new civil rights of today.” He argues that every young person should be given the right to a basic bank account at birth. Others who campaign against poverty, notably Nobel-laureate Muhammad Yunus, have argued that access to credit is a human right.
How should we understand these arguments? It might make sense to talk in more general terms of a person’s right to be financially included, or of a human right to access a range of high quality financial services at reasonable costs. Philosophers and lawyers disagree about the nature and importance of human rights, but there are three questions that we should ask about the purported human right of financial inclusion. First, what sort of right is this? Second, who is responsible for meeting the obligations that the exercise of this right will incur? Third, is the language of human rights the most effective way of promoting the goal of financial inclusion?
How would the right to financial inclusion compare with other types of human rights? There are some human rights that provide protection for the person against physical or mental abuse: the right not to be subjected to arbitrary arrest and imprisonment, the right to a free trial, the right not to be tortured, etc. Another set of human rights enable citizens to participate in the political life of their community: the right to free speech, the right to vote, the right to form political associations, etc. A third set of human rights help to ensure a basic standard of well-being for all: the right to education, the right to healthcare, the right to employment, etc.
The right to financial inclusion does not look very similar to rights of personal protection, which tend to be negative; that is, they are rights not to be treated in a certain way. However, it might be a civil right – part of what it means to be a citizen – if we think that access to the financial system is crucial to effective participation in the life of the community. Or it might be a welfare right – part of what it means to achieve an acceptable standard of well-being – if we think of financial inclusion as part of living a good human life.
If we opt for the civil rights model then we would expect governments to take responsibility for ensuring this right is guaranteed for all community members, in the same way that they are responsible for ensuring that the legal system and the electoral system are accessible to all. This would imply a significant socialization of the financial system, with governments running far more of the financial infrastructure than they currently do.
Alternatively, if we opt for the welfare rights model then there seems no reason to think that the private provision of financial services would cease to be the norm, as it is, for example, in the provision of employment. But in this case, private sector providers would be under strong obligation to meet the standards of service provision set by the government, and the government would provide some form of safety net for those whose needs are not met by the mainstream.
However, this implies that communities with stronger and more reliable governments will be much better placed to provide inclusive financial services. In communities where government is weak and inconsistent, the provision of inclusive financial services is likely to be far more patchy. Those most in need of better financial services are therefore those least likely to get them.
In particular, the provision of financial services to the young – the basic education in financial literacy that John Hope Bryant advocates – is unlikely to be of high quality in communities that are already struggling to provide their children with adequate healthcare, education and employment opportunities. Nor is it clear that poorer communities should reallocate resources from health and education budgets in order to provide better financial services. This is not to say that financial literacy is not an important issue; simply to say that it is not the most important issue.
Using the language of human rights adds a certain urgency to the debate about the need for financial inclusion. It also challenges the complacent assumption that access to high quality financial services should remain a privilege of the rich. But, as I have argued elsewhere, “human rights are political claims, which citizens make against governments and against institutions that have been established by governments, such as courts and tribunals.” It follows that where governments are weak or ineffective, so too the promotion of human rights will be weak and ineffective.
Perhaps Muhammad Yunus would do better to consider the success of his own company – the Grameen Bank in Bangladesh – as a model for improving the provision of financial services to the poor. There is plenty of evidence from all over the world that private sector microfinance initiatives – or “bottom of the pyramid businesses” – are the best hope for better quality financial services reaching the poorest and most excluded people. Financial inclusion might therefore be better thought of as a challenge for innovative businesses rather than as an obligation for governments.
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This is an interesting perspective. Perhaps it is not so important to rank rights or to classify them. A right to financial literacy (indeed, all literacy) would not be mutually exclusive with any other human or civil right. Messrs. Bryant, Hannam, and Yunus seem to agree that financial literacy is important to achieving human equality and opportunity. The most difficult question seems to be, as the author says, “[W]ho is responsible for meeting the obligations that the exercise of this right will incur?”.
Books such as Portfolios of the Poor: How the World’s Poor Live on $2 a Day by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven show how microfinance is already part of the everyday life of many people in poor communities. It also argues that the people studied already show considerable sophistication in managing their financial affairs, maintaining many streams of lending and borrowing, and doing such things as borrowing at high rates of interest even when lower rates are available, to provide themselves with an incentive to make paying back a priority. On the whole reading this book leaves the impression that the main thing very poor people lack is not access to financial institutions but a decent regular income.
Financial savvy is not an exclusive attribute that only the wealthy possess!! In fact, look at the wealthy individuals that have squandered millions with the likes of Bernie Madoff and Ken Starr….by not being in control of their own funds and having knowledge of how their money was being used.
Let’s not “tax” the system more by putting this responsibility on the educational system or the government. In fact, the banking industry is already addressing this issue…..walk into any large U.S. banking institution (like Wells Fargo for instance) and you will see a myriad of products for young adults, teens and children. The private sector is way ahead on this issue, check it out on the internet or your local banking institution. Better yet, what responsibility do parents have in teaching children about finances……a lot, regardless of what society you grow up in or how much income you have.
I’m inclined to think that the availability of micro-credit might be pretty darn close to a human right if you truly believe that small business is the economic engine of a successful economy. I’d be highly reluctant for government to be fully guaranteeing all such loans, however beyond that, I think anything else a government can do to reasonably facilitate the making of such loans (perhaps a partial interest matching subsidy?) ought to be considered part of building the financial infrastructure of a nation.
After my previous comment I ran this past a liberal friend who was even more skeptical about declaring a “human right” here as I was hedging a bit against myself. I do however think there are prudent angles for a government to consider. Yes being in endless debt sucks and taking on too much lending risk sucks to, and I don’t really think we should completely eliminate such considerations for market participants. We don’t need another sub-prime mortgage debacle in this (US) or any other country. Lenders and borrowers still need to otherwise assess their risks responsibly. So I’m not in favor of any “government takeover” (eg Fannie Mae or Freddie Mac) of that kind in the name of human rights – however I’m still open to considering government facilitation as part of a plan for economic development, growth, and infrastructure as long as it doesn’t pose serious fiscal risks to a nation’s budget and economy. Is there a way to do that?