The fiat lending world is fraught with complex rules and frustrating standards. Anybody who has ever tried to gain a traditional loan (or payday) loan knows this all too well. The financial landscape can be tough to navigate when it comes to lending and borrowing– this is especially true with you belong to a marginalized group or community. Let’s examine how the fiat lending industry discriminates against minority groups, and how crypto lending firms are able to avoid this.
Unfair Treatment of Marginalized Groups
A study published by The Harris Poll, in conjunction with USA Today, found that 43% of black Americans said they had been mistreated by the banking and loan industry. Additionally, 39% of the LGBTQ community agreed with this. In contrast, 28% of the general public felt mistreated by this industry (which is also a high number, but significantly lower than with other groups).
Marginalized groups are acutely aware of how they are treated by banks and financial institutions. Many people belonging to minorities have faced a long history of discrimination by banks. For instance, black people have consistently struggled to be taken seriously by banks and lending firms, as have LGBTQ individuals. These problems have persisted with little change. In the year 2000, the harrowing case of Rosa v Park West Bank took place, where a transgender person was denied a loan based on their gender identity. The presiding judge, Frank H. Freedman, responded to the case by dismissing the situation and blaming the plaintiff (Luca Rosa) for not dressing as a man. This is an important case in LGBTQ history, as it makes it glaringly obvious how the financial and judicial systems often work in tandem to damage gender-nonconforming people.
Similar situations have happened with people of color, where banks and lending companies turn their backs on applicants based on race. Sometimes this happens specifically because of race, and sometimes it happens due to living in a low-income area (even if the applicant themselves are not low-income). This is known as redlining, and it is most common with companies issuing mortgages.
In this day and age, LGBTQ people are 73% more likely to be denied a loan than the general public, and black people are 80% more likely to be denied.
Why has Traditional Finance Failed Minorities?
This information presents the institutional financial world in a damning light. It goes without saying that marginalized groups have been (and still are) significantly mistreated. The question now is why does this happen?
While there will be unique, specific, historical, and prejudicial reasons for this with each marginalized group, they can arguably all be chalked down to one thing. Traditional institutions offer loans only to those who they trust, and they are reluctant to trust people they do not understand or relate to. This stems from both lack of minority representation within these institutions, and deep-seated prejudice within top-level employees who view people belonging to minorities differently. A study by McKinsey & Company found that people of color are significantly underrepresented within the financial workforce, with fewer and fewer making it to high-ranking positions. The statistics are harder to find for LGBTQ citizens.
The issue at hand is that traditional banks and lending companies are oftentimes non-diverse environments that make for breeding grounds of prejudice. Banks do not trust minorities because banks are walled gardens, pushing minorities away time after time.
How does Crypto Lending Differ?
Thankfully, the crypto lending industry is able to avoid a great deal of these insidious problems. For starters, the beginnings of cryptocurrency (very likely) belong to Asia, with Bitcoin often being considered a product of Japanese origin. This, in itself, already puts the industry at odds with the highly euro-centric nature of fiat banking. In general, Asian countries have been instrumental in the crypto industry, both through the adoption of trading tools, and in the creation of blockchain ecosystems.
What’s even more important is that, when it comes to crypto lending, practically all organizations provide loans regardless of racial, gender, or socio-economic circumstances. This is because crypto lenders typically do not ask for identifying information, and do not perform credit checks. When looking at DeFi (decentralized finance) services, the tools simply do not exist for this type of background checking, as these systems are entirely automated. However, even with CeFi (centralized finance) services, it is highly unlikely for these checks to happen as it goes against the ethos of crypto being trustless.
The aspect of trustlessness is extremely important because when you remove trust, you remove prejudice. No longer is somebody using their own intellect and experience to evaluate somebody else. Instead, faith is placed in the coding and machinery of the blockchain. As legal scholar and White House advisor on technology and competition, Tim Wu said “In Code We Trust”.
Traditional banking has failed marginalized people, and so it has failed society at large. Following the words of Maya Angelou “no one of us can be free until everybody is free”, and until the fiat banking industry learns to understand marginalized groups, then we are all going to suffer. This is why we need crypto lending more than ever– freedom from arbitrary judgment opens up financial and lifestyle opportunities.
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