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Responsible lending

Irresponsible lending and borrowing has throughout history led to recurring debt crises. However, internationally there are still barely any regulations on responsible financing.

Many developing countries have struggled with high debt burdens following a wave of loans given without consideration to dictators during the Cold War-era. Some debt relief has been given, but many developing countries are still at risk of moving into new crises. Today, 108 countries are suffering from debt burdens at a critical level. European countries also being affected by debt crises shows that irresponsible financing is a global issue.

Responsible financing is about creating more just and predictable regulations and structures for lending and borrowing. This could help prevent increasing illegitimate – also known as odious – and unpayable debt. While Debt Justice Norway work mostly on the lending side of responsible financing, issues such as ”blending” are important. ”Blending” is a new form of development finance that is growing in popularity in EU-countries, and entails a mixing of development aid with lending and private investment in developing countries. This type of aid could be harmful to recipient countries that are already severely burdened by debt. To generate responsible lending, international legislation that ensures transparency in loan processes, accountability among both parties and democratic rooting in borrowing countries. Today, all guidelines and regulations are voluntary and therefore not very effective.

In 2012, the UN launched their principles for responsible lending and borrowing. These principles are an important first step towards better regulations to ensure responsible borrowing and lending across borders. The principle summarizes the ”best practices” in the area and have received recognition/support from 13 countries so far. The project was financed by Norway and was used in the Norwegian debt audit in 2013. Despite the principles being a step in the right direction, they are not as potent as we would have hoped, as we would rather see them closer aligned with Eurodad´s Responsible Finance Charter.

The Norwegian government has been at the forefront in promoting responsible financing internationally, both by financing the UN project leading to the UN principles, by cancelling debt based on creditor’s responsibility, and by carrying out a debt audit (of all loans given by Norway). However, more needs to be done before Norway can call itself a responsible lender. Norway has 1600 billion kroner in outstanding loans through the Oil Fund’s investments in government bonds. These money are being lent out with following any form of regulations on responsible lending.

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