The Collateral Poor

The Collateral Poor

I agree with Jack Ma. Not necessarily about the China banks – I don’t know enough about them to have a view. But when he says that the world needs “bold new players that can extend credit to the collateral poor”, I think he is right. Governments dish out money liberally to prop up their economies – rightly, during a pandemic. We don’t question that, because we assume an inbuilt collateral. For some governments that isn’t so. Anyway, the judgment bases on which all government loans are made are often inadequate.

We are all learning about money – what it is and how it works. Why, if you print it, it sometimes leads to staggering inflation and other times makes little impact except a slow decline in the value of the currency over time. Short-termism and long-termism collide over money, because money’s response to big loan management is generally unpredictable. I am talking about the response of investors and the general public to money’s value.

Money and faith are closer than you might think. The difference is that the belief for investors is in the project itself plus the people who are going to execute it and bring it to profitable fruition. At present, judgment by investors of a project needing investment is based almost entirely on forecasts provided by people they never see, handed to people who depend on their ability to sell the investment. The personal appeal of the people doing the selling may influence the sale. In other words, an investor needs to make judgments of the person selling the investment plus the people and systems behind the forecasts plus the people they won’t see who are going to make it profitable. Judgment becomes guessing.

The success of Muhammad Yunus’s Grameen Bank, founded in Bangladesh in 1983, provided microfinance to the virtually destitute in very poor surroundings. Some 95% of loans were made to women. The level of default was tiny because the people making the loans looked into the eyes of the borrowers and quickly learned who to trust and who not to. Their ‘people reading‘ skills were of a very high order. They had to be – they couldn’t afford losses.

Jack Ma is not talking about microfinance but about huge sums that will finance the demanding new projects of clean energy production, carbon capture, reforestation, ocean cleanup, wildlife preservation, planet restoration, numeracy exploitation, cyber conflict, space development, robotics, artificial intelligence, human health management, and human brain exploration. These formidable tasks will require finance years before they pay off. Even their exploratory stages are massively expensive, way beyond the normal experimental grants universities and research institutions currently receive. The sincerity in the eyes of the innovators of these projects provides no guide to their eventual outcome. They wouldn’t be doing them if they didn’t believe in them.

The time has come for significantly more capital to be made available for developments that will provide benefits for all humankind. Sources of funds have to be much more disposed to finance the big future projects than they have been in the past. Shareholders must expect that some of their return will be the improving climate and surviving planet, and some will be unavoidably delayed. The big things can only be achieved if everyone takes part in them.

In addition to financing these adventures, we need research and development investment on a larger scale than at present. Smart buildings are not the stuff of great development but persistent and repeated trials are. At present funds provide for too short trial runs and too few combinations of possibilities. Hence the high rate of drug failures where extra money would have led to success.

If the new President of the United States wants an enduring legacy he could do worse than ratchet up investment in fundamental research, the basis of all our scientific knowledge – now recognised as the best way to find out who we are. The facts about humanity, the organism that is a person and the functioning of the universe are the greatest unifying source of ordinary people.

So whether my priorities for investment would be the same as his I do not know, but I agree with Jack Ma when he says we should support the collateral poor and get on with the business of learning about life.

It is the only way we shall survive.