Empowering the Poor: Turning De Facto Rights into Collateralized Credit

Abstract

The shrinking middle class and the widening gap between the rich and the poor threaten social and financial stability. Though sometimes identified as a problem of developing countries, the inability of the poor to use as collateral their de facto rights in property, in order to borrow and start small businesses, impedes upward mobility is nearly all countries. Efforts to solve this problem have failed because they focus on transforming de facto rights into de jure title under property law, which is tightly bound to tradition and protecting vested ownership, and also because some countries have weak or conflicting property-law regimes. Credit, however, is a commercial law concept, and modern commercial law increasingly recognizes important policy goals and realities as a justification for overriding traditional property-law limitations. This Article analyzes why commercial law should allow the poor to use their de facto rights as collateral, thereby empowering them with credit and facilitating a radically new conception of sustainable finance—attracting arm’s length funding, rather than being dependent on limited or unreliable charitable sources.