Er... this is exactly how it works in developing / third-world countries.

My parents managed to obtain a loan for their first apartment thanks to my grandparents offering their house as colllateral. This is how pretty much everyone from my parents' generation got their first apartment.

Credit pretty much didn't exist in my parents' generation - loans were generally reserved for houses and cars, because of the strict conditions. Everyone saved up lump sums and paid cash. It's ineffficient, but far from "not participating in the economy".

It may be possible to negotiate different conditions on receiving credit, but I don't know if you can demand a modern economy without any drawbacks.