Deciding to lend to someone because you know them (they are "part of the community"), or they are a friend, or they are family. Of course it can be seen as more "humane" but it can also be seen as nepotism and/or a system excluding newcommers/strangers.

The condition is still the same. "Will he/she be able to pay me back/ return the favor"

And that condition will always benefit those who can return back. It's not about being newcomer or stranger, it's about being able to identify if it's a loan you can do.

That sounds like the personal system of honor being used for credit worthiness. Which wound up leading to dueling while doing a worse job of the primary task than banker evaluations. Needless to say all around it was a worse system with worse outcomes and worse externalities.