Lending is a business. Lenders defaulting on their loans is just business as usual. It's about as surprising as hearing that water is wet. You have to charge those who pay their loans back more if you want to break even. Shame doesn't compensate for the lost money. It's more of a revenge thing e.g. you borrow money from the mafia and they beat you up.

Riskier lenders are more likely to default so they get a higher interest rate to compensate for the risk. A lot of these people shouldn't be allowed to get a loan they can't pay back in the first place. If you are using an alternative form of collateral such as "social credit" then you are doing so with the intention of making it easier for people to get a loan even when it is certain they can't pay it back with money alone.

The shaming is no longer a result of personal failure. The shaming is now the cause of failure.

Think about it this way. The maximum amount of money you can pay back over 3 years is $3000 but you also have a reputation that is worth paying $500 for to preserve it. So the maximum you can borrow is $3500. The bank will accept the loan but you can't actually get the required amount. From a business perspective the bank is paying your debt in exchange for a very odd form of labor. It's just one step removed from indentured servitude.