National Traveller MABS
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National Traveller MABS |
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In
this chapter, I begin by discussing the historical background to money,
credit and interest in order to understand their strength in society today.
Following this I examine their relationship to the development of,
and philosophy behind banking. I then consider and discuss the failure of
many mainstream banks in meeting the needs of marginalised communities. By
marginalised communities, I mean any community that is economically
deprived, existing on either side of the North/South divide, in either an
urban or rural setting. I look at the effects on marginalised communities of
four main areas: 1) Global banking, that is any financial institution involved in large scale international lending such as the World Bank. 2) Investment banking and speculation, where individuals and institutions buy and sell stocks, shares and currencies simply to profit. 3) The policies of commercial banks, that is banks that deal with both business and individuals on a day to day basis, and, 4) How the criteria laid down by commercial banks for custom excludes members of these communities. The emergence of
money, credit and interest
Money
emerged with the growth of trade and the specialisation and intensification
of production. Money itself
took many forms, such as cattle, shells, stones and metals, and is thought
to have been in use for more than four thousand years, (Galbraith:1976).
However the first recorded use of coinage, that is metals being made
into coins of a predetermined weight, began in India around the tenth
century BC, (Galbraith:1976). It surpassed the use of barter; the exchange
of good for goods, as coinage offered a less complicated means of exchange,
each unit representing a proportion of the commodities being exchanged. As
trade and production increased, the demand for money grew, and with this
demand, the need for credit evolved. Credit
in essence is a system of doing business by trusting that a person will pay
at a later date for goods or services supplied, (Oxford Dictionary: 1994).
As the concept of credit grew, so too did the world of the moneylender. The
moneylender treated money not as a means of exchange, but rather as a store
of wealth to be used as a factor of production, that is production of more
wealth. Moneylenders achieved
this by charging a price for credit. Such
a price became known as interest, (Padmanabhad:1988), and as I will discuss
in chapter 3, such interest was condemned in both the Christian Bible and
Muslim Quar’an, long before it took on the standing it has in society
today. The
Oxford Dictionary defines interest as “money paid for the use of money
lent”, (1994:147). Islamic law refers to interest as “riba”, which literally
means, increase, expansion, addition or growth, (Chapra:1986).
Per Almgren [1]
develops the definition further by defining interest as “that part of
one’s income that derives from actual ownership” as opposed to income
earned from work, (Hofford:1998:1). Thus
Almgren views interest as all forms of unearned income from ownership.
Interest in essence, promotes the use of money as a store of wealth,
and as a means of production. The development
and philosophy of banks
Banks
became popular with the growth of credit and moneylending, as was seen in
Roman times, and although for a period in the middle ages in Europe,
religious objections to lending grew and the role of banks declined, this
was soon overshadowed by their revival with the age of Renaissance,
(Galbraith:1976). This western form of banking developed and eventually
spread throughout the globe with the growth of trade and the spread of
imperialism. Banks
are not owned by their members or customers and therefore do not seek to
empower their customers. Rather
banks are private financial institutions with the sole aim of profit making. Profits accrue from the charging of interest on loans and
fees for services rendered. Such
profits are not shared out in dividends among the customers nor are they
used in ethical investment or for community development. Profits are instead
used simply to increase the wealth of bank owners. The failure of
mainstream banks to meet the needs of marginalised communities
Banking has failed marginalised communities world-wide. This is evident from: 1) the effects of global banking on marginalised communities, 2) the effects of investment banking and speculation on marginalised communities. 3) commercial banks policies and their effects on such communities and, 4)
the criteria laid down by commercial banks for custom and how this excludes
members of these marginalised communities. I
now propose to look at each of the above in more detail. 1)
Global banking today cannot be viewed in isolation.
It goes hand in hand with the capitalist system, which dominates the
present global economy. Paul Gillepsie of The
Irish Times, views globalisation as “a conspiracy against the
world’s poor and relatively weak by privileged players,” (1998:10). The
control of world money markets is in the hands of a few, thus marginalising
the economically deprived even more. Investors
in this global market regard fiscal rather than social returns as their
priority. Therefore large scale projects or projects yielding high
profit margins in the short term are chosen for investment over projects
with a high social return. This
leads very often to an emphasis on the extraction of natural resources for
consumption, the building of nuclear plants or the development of large
scale production plants, all with little regard for their social and
environmental costs, (Hofford:1998). According to Gillepsie, international
companies are capable of “uprooting investments thereby disrupting or
destroying local communities” (1988:10), by relocating to more profitable
parts of the world. He cites
the Asian Economic crisis (in 1998) as an example of this.
Banks do not place an emphasis on investment in local community
development, or social investment which not only considers the economic
benefits to the community and the investors, but also the social impact it
will have on the community. Therefore
investment in projects which would benefit marginalised communities such as
education, training, or simply the building of infrastructure within such
communities, tends to be overlooked. The
development of economic globalisation, has not just seen an increase in the
marginalisation of communities, but also countries, and even to some extent
continents. As control of
banking falls into the hands of a few, so too does control of credit.
Control does not just extend to who receives credit, but also for how
long. This is evident from the number of countries under the grip of the
World Bank. Such countries have agreed to implement Structural Adjustment
Programmes (SAPs) laid down by the World Bank in return for financial
lending to alleviate their economic crisis, a crisis evolving in part from
the effects of imperialism and the economic domination of the leading
capitalist nations. However
such financial lending carries with it high interest repayments, which it
has been proven hold the borrowing countries at ransom by the World Bank.
Onimode, argues that such SAPs are politically based attempts on the part of
the dominant nations of the world to “recolonise Africa”,(1997: MD 234
Video). According to Albee and Gamage, a number of studies have identified
how the implementation of Structural Adjustment Programmes have added fuel
to the growth of urban poverty world-wide, (1996). Education and social
spending within these countries are drastically reduced to help meet
repayments, and investment in the growing of cash crops takes place,
(Onimode:1989). Such cash crops
are sold externally at less than the market price, leaving insufficient land
to grow domestically consumed crops. Thus
the necessity for imports arises, which in itself causes a greater need for
financial help. Inflation and job losses follow, and as usual it is the more
marginalised section of the community which suffer, (Onimode:1989,
El-Tom:1994, Vickers:1991). 2)
The importance of speculation and the power of international investors
cannot be ignored when reflecting on global banking. As money has become a
commodity, speculation on its value has become a source of income for many,
but a cause of hardship for most, (Galbraith:1976).
Within the global banking system there are those who speculate on
world markets with commodities and exchange rates, in order to profit.
Such speculation together with the withdrawal of investment from
certain areas, causes instability in exchange rates, inflation and
unemployment. This was evident
by the Wall Street crash of 1929, the depression throughout Europe in the
1930’s, the oil crisis of the 1970’s and more recently with the crash of
the Asian economic tiger in 1998 and the continued instability and growth of
debt and poverty in many nations of the South.
Unemployment and inflation lead banks to withdraw credit, as people
find it increasingly difficult to meet loan repayments.
Bigger debtors are given more leeway by the banks as a default on
their part would be detrimental to the bank itself.
Therefore banks tend to be less lenient with small borrowers, who are
usually the more marginalised in society.
Such pressure itself is often enough to force default and bankruptcy.
Thus banks, working only for a fiscal return, favour the rich and isolate
the poor. The polarisation of
wealth, has become today the domain of a small percentage of the world’s
population. 3)
The main purpose of banks is to make profits, and therefore what they regard
as high risk borrowers are rarely entertained. The policies of commercial
banks within communities tend to favour a high profit return over providing
a service to the community. This
was evident in Britain in the 1980’s, when national banks, that failed to
attract a high percentage of customers within certain communities because of
their strict credit laws, tended to close down these community branches and
move elsewhere (Daly and Walsh: 1988, Quinn and McCann:1997, Ford: 1991).
Such policies on the part of the banks reflect their disinterest in
understanding why such communities do not avail of the banking service. The
streamlining of banking services in recent years, such as automated teller
machines, credit and debit cards and cheque card accounts, in order to cut
costs and achieve higher efficiency, has further escalated the problem of
exclusion, (Quinn and McCann:1997, Mayo:1996).
Daly and Walsh predicted this polarisation of the banking services
available to the “rich” on the one hand and “poor” on the other due
to this streamlining, as the “poor” become more anonymous and are seen
on paper as too high risk, (1988). A
survey carried out by Quinn and McCann highlights a decline in the numbers
of Travellers in Dublin, Ireland, holding accounts with banks, while
membership of credit unions remains steady, (1997).
Daly and Walsh report on how in Ireland only 30% of the unemployed
have bank accounts, (1988), while Ford draws attention to the fact that in
1989 more then 11 million adults in Britain did not hold such accounts,
(1991). But what are the criteria used by banks for lending and why are such
communities not availing of this service?
I now discuss some possibilities, thereby reflecting on why I feel
banks are failing such communities world-wide. 4)
As the main aim of a bank is to make profit, it follows that banks are only
interested in those who can help them achieve such profits.
Banks give credit only to the credit worthy, (Mayo:1996).
Thus one must have a history of credit or a source of collateral to
be used against the loan. Banks
measure the risk factor in relation to a person’s financial standing, such
as their profession, income and their assets, (Quinn & McCann:1997:
Devereux and Peres:1990). However
economically marginalised people very often have neither a credit rating,
nor collateral because they cannot obtain legal credit to begin with. This
is evident by the fact that low income households avail of bank credit
considerably less than affluent households, and the former’s use of it
tends to be from necessity rather than choice, (Ford: 1991). To
further escalate the problem within marginalised communities, female headed
households tend to be viewed by banks as less creditworthy than their male
counterparts, particularly when seeking support for income generating
projects. In some societies,
banks may even require the signature of a husband or male guardian before a
woman is considered for a loan. As
many marginalised or low income communities tend to have a higher than
average rate of female headed households, the problem of access to credit is
compounded, (Albee and Gamage:1996, Devereux and Pares:1990, Hogan:1998). Banks
work to attract high investors and secure debtors by offering lower interest
for higher borrowing and renegotiating loan repayment if such high-borrowers
fail to meet the repayment. Low
scale borrowers and savers do not really assist in the profit making of a
bank. Thus banks rarely focus on the needs of such people and should a low
scale borrower have difficulty in repayment, the banks tend not to
renegotiate, as writing them off as a bad debt will not be detrimental to
the bank. Thus some small scale
borrowers or businesses who fall into periodic difficulty, are more likely
to become bad debtors simply because the extension of credit and
renegotiation of repayment is not as generous for them.
This leads to inefficiency within the community, where unemployment
increases and services or goods provided locally may cease to be available. The
exclusion from the banking sector, of the more marginalised communities
within society can often be brought about more subtly. For example,
application forms are too complex or a basic current account may be opened
for the customer without the granting of a cheque guarantee card,
(Ford:1991). This inaccessibility to the banking sector for many communities
is evident in Quinn and McCann's survey where 34% of respondents, when asked
of their credit needs, responded that they would wish to have access to a
credit facility with money advice. Their
exclusion from this form of credit is further highlighted by the fact that
8% wish simply for equal access to what is already there, (1997). The
unequal access to credit very often contributes to an increase in the number
of people within marginalised communities availing of high-cost alternative
credit such as illegal moneylenders, (Ford:1991).
This is reflected in one of the findings of
Quinn and McCann on access to credit for the Traveller community in
Dublin, Ireland, in which 50% of respondents were recorded to have taken
loans of over Ir£100 from moneylenders while 0% had borrowed from banks,
(1997). Such a finding is
supported by a similar survey carried out in May 1988, by Daly and Walsh, in
an economically deprived Dublin suburb, where less than 1% of those
interviewed had borrowed from a bank while 14% had borrowed from
moneylenders, (1988). It is also worth noting that in general women tend to borrow
more than men. Quinn and McCann found that of the 13 loans over £100, women
accounted for 10 of them. This reliance on moneylenders by either women or
men drives individuals and communities further into the poverty trap. Such
moneylenders have been known to charge APR
interest rates of up to 1000% on loans and, to inflict physical and/or
mental violence on the borrower if repayment is not met, (Quinn and
McCann:1997, Daly and Walsh:1988, Ford 1991). Finally
banks exclude certain sections of society such as, Muslims from availing of
their service. As we will see
in chapter 3, Islamic law preaches against the payment and receipt of
interest. Thus in many Islamic countries such banks described above, fail
communities. This is evident of
Britain today, where Muslim communities have grown to become a majority in
certain areas, yet banks within these areas, have made no attempt to address
the issues surrounding their beliefs. In
conclusion, within this chapter I have looked at the failure of banks to
meet the needs of marginalised communities world-wide. The emphasis on
profit and expansion by the mainstream banking sector, (global banking,
international investment and speculation, and commercial banks) serves to
impact negatively on such communities. This causes the exclusion of the
economically poorer sections of societies from gaining access to credit.
Furthermore the charging of interest can compound this problem and in
addition exclude communities who disagree with it for either, social,
cultural, economic or religious reasons. The credit unions seek to address
this exclusion and it is with regard to this that chapter 2 focuses. We want your feedback on our web site please click here to sign our guest book or click here to view our guest book.
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