“Today’s banks are still operating with a pawn shop mentality, needing collateral and guarantees are just like pawn shops…China’s financial pawnshop mentality is the most serious” – Jack Ma (Financial Times, November 2, 2020)
This statement was made by Jack Ma, in a speech, before the company he founded was due for an IPO. The rather harsh criticism of China’s banking sector has led to a backlash from financial regulators leading to a suspension of the IPO. Jack Ma, a technocrat & capitalist emerging from a communist country, has highlighted short comings in the present financial system.
From a sociological point of view, this development is quite interesting for this clash is at the intersection of financial capitalism, platform capitalism and the political system. This conflict, at the confluence of technology, finance & policy, has serious implications for wider society. Who do these serve? Do platforms serve the interests of the capitalists, politicians, technocrats or the wider public that ‘use’ these platforms? Given the multiplicity of interests that come under the rubric of platform, should entities such as ANT be allowed to list on a stock exchange? A case could be made for the creation of another type of exchange, perhaps a “social exchange” or “SOCEX” which uses different parameters to value these platforms. That perhaps is possibly the topic for another blog.
The statement made by Jack Ma questions the intent of banks and regulators. Do they exist to protect the financial system or to further inclusive economic development? If the financial crisis of 2008 revealed anything, it is that the financial system will protect itself before looking out for the interests of the larger public.
Access to credit is necessary for individuals and businesses to grow and help themselves. Banks tend to play it safe when lending and demand collateral from borrowers to secure a loan. This has proved to be a bottleneck as most intending borrowers have little or no collateral. So how can one assess the credit worthiness of a borrower?
Jack Ma proposes a Big Data based credit scoring which uses algorithms and alternate data points to assess credit worthiness. This type of credit scoring is prone to bias and predatory targeting or exclusion of vulnerable groups.
A gap has been created between safe lending based on traditional methods of risk assessment and Big Data based credit scoring. Large numbers of individuals exist who could potentially benefit from alternate methods of credit evaluation. There may be credit worthy individuals, who in the absence of collateral assets to secure a loan, are left without an opportunity to improve themselves. This is a case of structure taking away agency by exclusion. Although it has risks, Big Data definitely has shown the way to such alternate methods. It is now a question of policy makers, bankers, regulators and technocrats to work together to identify problems, create policy and implement solutions that serve all interests.
Bibliography
Ryan McMorrow in Beijing and Henny Sender in Hong Kong, Financial Times, November 2, 2020. https://www.ft.com/content/ea298d72-aa5d-4c4b-b74d-e255f579ab98
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