PAPER WRAP-UP: “Should Access to Credit Be a Right?” by Marek Hudon

This 24-page article discusses the ethical and legal arguments behind credit as a basic human right. Written by Marek Hudon of the Solvay Business School at the Université Libre de Bruxelles (ULB), the paper proposes that credit in a “goal-right” system as opposed to a blind human right will appropriately work towards universal access to credit. One can find the full paper here.

Quoting Mr. Yunus, the author defines the right to credit as access to “affordable (micro)credit in terms of interest rates.” In addition, the author supposes that the primary motivation for declaring credit as a basic right is to bring about the international exposure and pressure for greater financial inclusion and thus the end of poverty. MicroCapital has covered Mr. Yunus’ view of credit as a basic right in further detail.

The paper begins by covering the arguments for credit as a basic moral right, such as those in the UN’s International Covenant on Economic, Social, and Cultural Rights. One claim is that access to credit is an effective means to achieve other rights such as food, shelter, and health by providing the poor a means to generate income. Thus, credit could be considered a necessary companion to other rights, which enables the sustainable realization of poverty reduction. Furthermore, the “right to work” for the poor often means self-employment through microenterprises, which affordable credit can supply.

Another argument is that access to credit is central to economic development. According to a World Bank research paper, “economic development which encompasses all citizens has been shown to benefit the poor disproportionately, as their incomes grow faster than the average per capita GDP growth.” There is also the argument that the public and financial sectors have a moral responsibility considering the political and social-economic effects of financial exclusion.

After establishing the arguments advocating a right to credit, the paper also looks to understand the objections. One criticism focuses on lenders’ rights as opposed to those of the borrowers. In other words, the right to credit could violate the rights of financial institutions by forcing them to lend when they would normally not be willing. Furthermore, universal access to credit would likely require government intervention, which could distort the market, create inefficiencies, and jeopardize the ultimate goal. In essence there is mismatch between the demand and supply side of credit, which itself is a mutually acceptable agreement between two parties.

The paper also argues that right to credit is unlike other basic rights, as it does not provide a good or service to be awarded to all citizens. Furthermore, credit use does not guarantee positive consequences and could potentially harm its holders. For instance, borrowers risk over indebtedness and abusive financial practices by lenders. Finally, basic human rights are supposed to be universal, whereas interest rate practices impose Western principles considering they are banned in some societies. In other words, the successful use of credit is dependant on many variables and is not universally the best instrument to reduce poverty.

Another concern questions the link between credit and development. For instance, usurious credit lending and uncompetitive microcredit markets could hurt borrowers and their financial development. Thus expanding access by improving borrowers’ credit eligibility, via rights like education, is perhaps better than blindly providing universal access.

The final objection is that credit lacks two key characteristics of other economic and social rights. The first attribute is a clear allocation of duties among responsible parties. There are the basic questions of who will provide credit to the poor and how to create a private institutional infrastructure against which the right can be claimed. The second characteristic is the realistic feasibility of providing credit to meet the demand. After all, a right is worthless if not legally enforceable nor directly actionable.

Thus the paper concludes that access to credit is not a basic economic right. However, it argues that credit should be a moral right in a “goals-right” system. According to the paper, “a goal-right to credit would not be a binding constraint but rather a high priority goal.” Thus, the system can still be meaningful even if the full realization of the right is not immediately or fully realized. Furthermore, the duties to ensure everyone secure access to credit falls on all who participate in the socio-economic framework rather than establishing a traditional, legal framework.

Dr. Hudon is a FNRS Research Fellow and a co-director of the Centre for European Research in Microfinance (CERMi). Dr. Hudon is also a scientific coordinator and lecturer for the training program, European Microfinance Programme. Academically, he has a PHD in Economic and Management Science, an M.A. in Philosophy, and a master in Management Science all from ULB.

by Jennifer Lee

Additional Resources:

Université Libre de Bruxelles: “Should Access to Credit Be a Right?”; by Marek Hudon; January 2008.

World Bank Policy Research Working Paper: “Finance, Inequality, and Poverty: Cross-Country Evidence”; No. 3338; by Beck, Thorsten, Demirguc-Kunt, Asli and Levine, Ross; June 2004.

MicroCapital Story: “Open the Capital Flood Gates: Mohammed Yunus of the Grameen Bank Wins Nobel Peace Prize”; October 13, 2006.

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