I think it's the "charging for the risk" that is the problem. If they pay you back in full, the risk is non-existent. If they don't pay you back in full, charging extra does not remedy the situation.
Discussion
So Alice and Bob want to borrow money. Alice has a job and Bob would have a job if only I lent him some money to get to that work place.
Should I lend to Alice or to Bob? If Bob is offering me more in return, I would obt for Bob but for Alice otherwise. With Bob I might need more scrutiny to decide if I would facilitate getting to that job or if the money would not contribute to getting a job at all but for some extra return, it might be worth it.
I don't know, if you cannot account for risk in your lending business, I don't see much business.
I think the idea is that lending shouldn't be a business.
So lending should not extend beyond friends and family? Not sure if that's a good strategy for a society. I bet a society with lending beyond that small circle is more effective at allocating resources.
Why start with a false premise?
If there is no profit in lending, there will be less lending. Explain it to me where I got it wrong.