Since I’ve written about debt quite a bit this month, I thought I might redress the balance a bit and talk about healthier forms of borrowing.
Debt doesn’t have to be a bad thing. After all, at face value a loan is giving someone access to somebody else’s surplus. There would be no investment, no development, no entrepreneurship or innovation without some measure of lending. New economic initiatives wouldn’t get off the ground, good ideas wouldn’t happen, poor people would stay poor. And of course nobody would be able to buy anything until they’d saved up for it and could pay for it outright, which means most people wouldn’t be able to buy a house until they were in their sixties.
Debt goes wrong when it is used exploitatively, when people are encouraged to buy more they can afford, to take on debt they don’t need. Debt works for investment, not for living costs. The trouble is, once debt becomes a business, those businesses are going to try and sell as much debt as they can, whether people need the loans or not. Perhaps it’s the potential for exploitation that meant charging interest was outlawed in the Old Testament law, and was (officially) prohibited right through the middle ages.
The first healthier form of borrowing I wanted to mention is peer to peer lending, or social lending. This is the kind of lending that has always gone on, long before banks were invented, between family members, friends and neighbours. It’s de-institutionalised borrowing. In recent years it’s seen something of a resurgence through the internet, and the key network behind that has been .
Zopa has basically facilitated a site where “people who have spare money lend it directly to people who want to borrow”. With a variety of safety checks, people can put money into the system, choosing what level of interest they’d like to offer. Others can then pick up a loan at an amount and an interest rate that suits them. There are no bank overheads keeping the interest rates high, and nobody is playing the stock markets or currency markets with lenders’ money. It’s not as good as borrowing from your actual friends and family of course, but it’s still lending done relationally, with real people benefiting on both sides.
It’s a radical business model, and I recommend looking up Zopa for that reason alone – it could be at the forefront of a serious shift in banking practices in the next few years.
There are other forms of good borrowing, but I don’t want to write a really long post, so I’ll deal with some of them next time.