Why Interest? by Muhammad Ali Nadeem

When people use to ask me as “why interest is prohibited” in our society? Look at the banks structure, we have some money, we are going to open an account and deposit our money, probably hard earned, to make some money out of it? They usually give me few examples such as “I am 65 years old retired government officer, I have received approximately rupees 500,000 at the time of my retirement, and now I feel that I don’t have some skills and strengths to invest that money in any business, hence I am putting them in a bank as a time-deposit where I could earn some money at the rate of 5% or 6% per annum.” I would get some money to bear my living expenses as well as there wouldn’t be any risk and my money would be secured and could be enchased any moment. If I invest it in any business, say if I open a shop there’s no guarantee that it would earn me some money to manage my expenses and the risk of failure remains there for ever!

I never use to answer them with logics and arguments inviting them to learn Islamic finance concept. I only tell them that there are many Islamic banks in Pakistan, you may invest your money in such Islamic financial institutions and get profit at the same rate of interest, to avoid interest which is a prohibited concept in Islam!

The response was not very much positive!

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Money Matters: Usury in Hinduism and Buddhism

Among the oldest known references to usury are to be found in ancient Indian religious manuscripts and Jain (1929) provides an excellent summary of these in his work on Indigenous Banking in India. 

 

The earliest such record derives from the Vedic texts of Ancient India (2,000-1,400 BC) in which the “usurer” (kusidin) is mentioned several times and interpreted as any lender at interest.  More frequent and detailed references to interest payment are to be found in the later Sutra texts (700-100 BC), as well as the Buddhist Jatakas (600-400 BC).  It is during this latter period that the first sentiments of contempt for usury are exressed.  For example, Vasishtha, a well known Hindu law-maker of that time, made a special law which forbade the higher castes of Brahmanas (priests) and Kshatriyas (warriors) from being usurers or lenders at interest. 

 

Also, in the Jatakas, usury is referred to in a demeaning manner: “hypocritical ascetics are accused of practising it”.

 

By the second century AD, however, usury had become a more relative term, as is implied in the Laws of Manu of that time:  “Stipulated interest beyond the legal rate being against (the law), cannot be recovered:  they call that a usurious way (of lending)” (Jain, 1929: 3-10).  This dilution of the concept of usury seems to have continued through the remaining course of Indian history so that today, while it is still condemned in principle, usury refers only to interest charged above the prevailing socially accepted range and is no longer prohibited or controlled in any significant way.

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The concept of “usury”

The concept of “usury” has a long historical life, throughout most of which it has been understood to refer to the practice of charging financial interest in excess of the principle amount of a loan, although in some instances and more especially in more recent times, it has been interpreted as interest above the legal or socially acceptable rate.   Accepting this broad definition for the moment, the practice of usury can be traced back approximately four thousand years (Jain, 1929), and during its subsequent history it has been repeatedly condemned, prohibited, scorned and restricted, mainly on moral, ethical, religious and legal grounds.  Among its most visible and vocal critics have been the religious institutions of Hinduism, Buddhism, Judaism, Islam and Christianity.    To this list may be added ancient Western philosophers and politicians, as well as various modern socio-economic reformers.  It is the objective of this paper to outline briefly the history of this critique of usury, to examine reasons for its repeated denouncement and, finally, to intuitively assess the relevance of these arguments to today’s predominantly interest-based global economy.    The scope will not extend to a full exploration of some of the proposed modern alternatives to usury, except to describe the growing practice of Islamic banking as an example.

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