The inequalities of capitalism are gross, but while we're here, that's the way the world works.
Sure, money or anything can be used as a test to determine someone's character. But you can do so without putting money on the line and save yourself some headache.
One way to determine someone's character is to spend time with them, listen to what they say about themselves and others, and whether or not their claims about themselves line up with their actions across time.
Maybe money is "cheaper" and "faster" than this route, but... Guess that's just been my go-to method to determine whether or not someone has integrity, is trustworthy, and has a sense of responsibility, parity, and respect for self and others.
Giving money without expecting it in return, or even being clear about expecting to be paid back, is more about having gauged people's characters & motivations, even when I get it wrong or things don't pan out as agreed-upon.
I would just cut off contact with those people. I don't really get this much because I'm not rich, but if people ask me for loans just to get money out of me I will be the one breaking off contact.
On the other hand I have a friend of mine who has loaned money and never paid me back, but she is always in a financial hard spot and she is extremely generous to the community she drives. I never really expected to be paid back for that either but in this case I just wanted to help someone who cares more about others than herself.