This is completely off-topic, and a much more substantial piece than my usual posts. However, this discussion at Aeon prompted me to put forward some thoughts on similar issues which I wrote a while go.  I hope this is interesting, but in any case normal service will resume in a couple of days…

Debt problems beset the modern world,  from unpayable mortgages and the banking crises they precipitate, through lives eroded by unmanageable loans, the sovereign debt problems that have threatened the stability of Europe, to the vast interest repayments that quietly cancel out much of the aid given to some developing countries. Debt is arguably the modern economic problem. It is the millstone round our necks; yet we are not, it seems, to blame those who put it there. Debtors are not seen as the victims of a poorly designed, one-sided deal, but as the architects of their own prison. It is widely accepted that they face an absolute moral duty to pay up, irrespective of capacity or consequences. The debtor now bears all the blame, although once it would have been the lenders who were shamed.
That would have been so because usury was once accounted a sin, and while the word now implies extortionate terms, in those days it simply meant the lending of money at interest – any rate of interest.  The moral intuition behind that judgement is clear – if you gave some money, you were entitled to the same amount back: no less, no more. Payment and repayment should balance: if you demanded interest, you were taking something for nothing. The lenders did no work, added no new goods to the world, and suffered no inconvenience while the gold was out of their counting house. Indeed, while someone else held their money  they were freed from the nagging fear of theft and the cost and inconvenience of guarding their gold. Why should they profit?

From a twenty-first century perspective that undeniably seems naive. Interest is such a basic part of the economic technology underlying the modern world that to give it up appears mad: we might as well contemplate doing without electricity. The very word ‘usury’ has a fustian, antiquarian sound, with some problematic associations lurking in the background. An exploded concept, then, an archaic word; a sin we’re well rid of?

Yet our problems with debt surely suggest that there is an element of truth lurking in the older consensus after all; that there is a need for a strong concept of improper lending.  Isn’t there after all something wrong with a view that blames only one party to a lending plan that has gone disastrously off track? Shouldn’t the old sin now be raised from its uneasy sleep: shouldn’t usury, suitably defined, be anathematised once more, as it was in earlier times?


Historically, the charging of interest has been regularly condemned; but condemnation has always tended to give way to accommodation. The Roman Lex Genucia of 342 BC forbade the charging of interest absolutely; but that law was gradually undermined by the desire of both lenders and borrowers to do the deals. When everyone considers themselves a beneficiary, no-one prosecutes; on the contrary, they conspire to keep things quiet. Subsequent Roman law took a more pragmatic line, allowing the charging of interest at a specified standard rate.

In the disorder that followed the gradual collapse of Roman administration the issue of usury naturally receded, but early Christian authorities were generally clear that interest payments were condemned by the Bible: as well as several references in the Old Testament, in Luke we are enjoined to

…do good, and lend, hoping for nothing again… (Luke 5, 35: KJV)

Thomas Aquinas went to some lengths to explain why renting a house is acceptable while “renting money” is not: he seeks to draw a distinction between goods which like a house, are not exhausted by use, and those like money, which once spent, are gone. Generally though, the authorities did not feel that subtle philosophy was needed; usury was just wrong, and from the time of Charlemagne onwards, interest payments were again forbidden throughout Christendom. Interest-bearing loans went on being made, though, just as they had when forbidden by the Lex Genucia. Rome was less flexible in response to this than the Romans had been. The Third Lateran Council (1179) noted peevishly that:

Nearly everywhere the crime of usury has become so firmly rooted that many, omitting other business, practice usury as if it were permitted, and in no way observe how it is forbidden in both the Old and New Testament.

The Council was very serious about this: it called for usurers to be excommunicated and refused Christian burial (note those penalties). The Church’s opposition continued through the medieval period, forcefully reiterated at the Council of Vienna in 1311, which observed:

Serious suggestions have been made to us that communities in certain places, to the divine displeasure and injury of the neighbour, in violation of both divine and human law, approve of usury.

Usury was comprehensively banned at Vienna, all local laws allowing it invalidated, and the belief that it was not sinful declared heresy.  In practice, though, it continued to be the case that no prohibition was really effective so long as lenders wanted to lend at interest and borrowers continued to want to borrow on those terms. Loans would be made, sometimes brazenly, sometimes covertly. If you were worried about lending, there were various ways to do deals that replicated the effect of interest without explicitly specifying it. Interest could be provided in kind, rather than in cash, for example; the amount lent could be overstated in the accounts to begin with; interest could be presented as fees for late payment; forward contracts could include manipulated values; and other more subtle approaches. Perhaps the neatest of all was the contractum trinium, a deal which separated an interest-bearing loan into three separate contracts. One contract transferred money from banker to borrower in the form of a permissible investment; the lender advanced the money for a venture in return for a share of whatever profits were made. A second contract limited the profit payable to the lender to the desired percentage, with any profits above that retained by the borrower. Under a third contract, the borrower insured the bank against losing its money or failing to be paid the desired rate. None of these three deals was usury in itself and none was forbidden, but put them together and they were the effective equivalent of an interest-bearing loan.

In the end the resistance of the church authorities was worn down, no doubt in part because later Popes themselves had begun to rely on helpful loans. The Fifth Lateran Council (1512-17) took a radically different view of the whole matter. Without, of course, countenancing usury by name, the Council agreed that where loans were made, moderate expenses were in order. Not interest, you understand, but charges designed to cover the lender’s administrative and other costs.  Lending on such terms was actually praiseworthy; in fact it was now those who said otherwise who were to be excommunicated (the path of orthodoxy is narrow). No-one was shocked if the permissible charges turned out to reproduce the effect of impermissible interest.

This clarification signalled a general sea change in attitudes. Explicit interest at reasonable rates began to seem respectable and a redefinition took hold. Criticism of usury softened into condemnation, not of interest in itself, but merely of excessive or unreasonable terms.

By now, of course, the Vatican did not have things all its own way. Protestant reformers adopted a range of views on the matter; while some rejected interest absolutely Calvin defended it; and Luther, though generally against usury, wrote thoughtfully on the subject. He addressed a number of different financial arrangements that yielded benefits akin to interest and in discussing one of these variants he put his finger on what had arguably been the real issue all along: the unequal sharing of risk between lender and borrower. In 1524 he wrote:

The only way of defending this business against the charge of usury – and it would do so better than all talk of interest – would be that the buyer of income have the same risk and uncertainty about his income that he has about all his other property… “…if you would have interest on my profits, you must also have an interest in my losses, as the nature of a bargain requires.” The owners of income, who will not put up with that, are just as pious as robbers and murderers, and wrest from the poor man his property and his living. Woe to them!”

This was not a new view; critics of usury often drew an important contrast between investment, where the person putting up the money shares the risk and gets nothing if the enterprise fails, with loans where the risk is all taken by the borrower, and the lender’s profit is guaranteed (at least in theory).

If the risks are not realised, of course, the unequal sharing doesn’t matter. Where the borrower’s business succeeds, and where they pay the kind of sums foreseen when the deal was struck, no problem arises: but where the enterprise fails, so that the planned means of paying disappears while the debt increases nevertheless – compound interest dramatically magnifying the problem – the disproportion between loan and repayment may become monstrous, the loan of an originally manageable sum growing to eat up everything the borrower owns: yet in principle the duty to pay remains absolute, as does the lender’s right to payment in full. So while the simple idea of interest as inherently wrong may be mistaken, this one-sided allocation of an unlimited risk is surely a real and continuing problem which we could properly denounce as usury.

But we don’t.  There are several reasons directly linked with the real advantages of interest-bearing loans, but I think we are also inhibited by a background awareness that historically the word ‘usury’ was often used to express and bolster antisemitism. To use the word is to summon up the figure of Shylock or worse, something decent people are not eager to do.


It is impossible to read about medieval condemnation of usury without noting the antisemitism that routinely went with it. The Fourth Lateran Council made the link explicit:

The more the Christian religion is restrained from usurious practices, so much more does the perfidy of the Jews grow in these matters, so that within a short time they are exhausting the resources of Christians.

This claim, that Jews developed an effective monopoly of money-lending because the Christians were forbidden from indulging in it, is still repeated today in spite of its obvious absurdity. Christians never let the Jews have a monopoly of murder, robbery or any other sins in spite of vigorous prohibitions and sermons, so their holding back exceptionally from usury would have been remarkable; but there is nothing in the historical record to suggest they did. We noted that the punishments prescribed for usury by the Third Lateran Council were excommunication and refusal of Christian burial: surely somewhat toothless penalties if the only offenders were thought to be Jewish?  The Fourth Council’s explicit attack on Jews is clearly a hangover from its call for a crusade. The crusading spirit, with its general hostility to non-Christians, seems always to have been accompanied by antisemitism, and the charge of usury fits into that context.

It isn’t at all hard to think of obvious evidence of Christian money-lending on a grand scale. The name of Lombard Street in the City of London commemorates the ethnic group who for a while really did have a special grip on lending. It was Italians, not Jews, who introduced to Europe the secret of double-entry book-keeping, the advance that transformed the business. The Medici, who preferentially used money rather than weapons, were past masters of the loan structured to avoid the explicit appearance of usury. The Fuggers, perhaps the wealthiest people of all time, provided loans without which the Holy Roman Emperor could not have funded his election. The same family were plausibly accused of using the influence their loans gave them over the Pope to induce him to take a more relaxed attitude to interest, although by then the kind of man who became Pope tended to have a more pragmatic, sophisticated grasp of finance in any case.

In England, Dick Whittington, no less – a historical four-time Lord Mayor of London as well as an enduring pantomime character – achieved the heights of success by skillful lending, building his influence and position through  a combination of adroitly managed loans to the King and careful protection of the City’s threatened interests. Whittington, in what we probably shouldn’t call chutzpah, went on to sit as a judge in the notable usury trials of 1421 – who better to make the fine judgements required? We can say with some confidence that not one of the usurers hauled up before Whittington were Jewish, as all Jews had been excluded from England since 1290 (not to return until readmitted by, of all people, Oliver Cromwell).

One may wonder in fact whether Jewish traders were ever proportionately more prominent in the money-lending business than anyone else. They clearly attracted a larger share of the odium, but loans from relatively vulnerable Jews were naturally far easier and safer to resent and contest than loans from a Medici or a Whittington – well-connected men who were not to be lightly crossed. A basic truth here seems to be that usury was nominally a small man’s crime, a charge levelled against local pawnbrokers and merchants with a side interest in discreet personal finance, but not against important people. If you were rich, and especially if the King or the Pope was in your debt, then whatever you were doing, it wasn’t going to be called usury.

Still, although the linkage may be unjustified the words ‘usury’ and ‘Jew’ still have a lingering association in our culture, and I think this does help to inhibit any revived discussion of the old sin. That leaves the implicit connection, with its implied slur, untouched at the back of our minds. We should do better to reclaim the word, let regular use neutralise and ventilate it and turn it into nothing more than a useful financial term.

Because it’s there

Another reason we let usury pass is simple inertia; or rather a compound of inertia, optimism and inattention.  Interest-bearing loans are the way we do things… and after all it works out fine most times.

Our financial lives are governed to a great extent by the conventions and rules of a business and corporate culture which we rarely notice; partly because of its simple familiarity and partly because we mistake its customs and traditions for the natural and inevitable consequences of capitalism, as though there were only one way to organise and conduct business.  The grip of this monoculture has tended to become even narrower in recent decades as mutuals, co-operatives, non-profits and state enterprises are closed or restructured to resemble the standard shareholder company; at the same time tighter rules have enforced a more standardised pattern of corporate governance. Whether this reduction in diversity, and the resulting reduplication of a particular inherited model is necessarily in the best interests of business itself is a wider question, but among the assumptions which feature strongly in the current culture is the idea that for most of us debt is the natural state to be in. If you haven’t got a proposition which is profitable enough to cover interest payments, you probably shouldn’t be bothering to start your business: if you haven’t got a loan you aren’t expanding your capacity fast enough. If you haven’t got a mortgage you’d better get one before house price inflation takes ownership, and the automatic gains that go with it, forever beyond your desperate grasp.

This does make some sense. After all, we can see all around us examples of loans that worked out well. The expectation that borrowing on standard terms is safe and manageable looks pretty reasonable.  Yet consider the traditional mortgage: it has often been pointed out that on the face of it this is a deal no rational borrower would sign up to. The lender has the right to vary the rate of interest at will, and in the event of a default can take the property without thereby renouncing any further liability that might still be outstanding. The borrower’s only escape would be to borrow elsewhere on better terms in order to pay off the debt; but the lender may also insist on the right to impose penalties that could in principle make an early pay-off punitively expensive. On paper, in short, borrowers are tied hand and foot and simply rely on lenders not using their  power in unreasonable ways. In recent years, of course, the mortgage market has diversified, increasingly offering fixed-rate and other terms. Borrowers have obtained more freedom and other ways to give themselves a degree of protection.

Still, a commitment to unlimited interest unavoidably carries risks. Our feeling of safety in these circumstances may well owe something to a disinclination to consider the worst case, and indeed to human cognitive limitations; the inability to grasp just how rapidly the geometric progression of compound interest stacks up. People don’t think much about failure and when they do, they typically don’t realise how devastating the worst case could be.

Islamic Finance

If cultural factors are a barrier, perhaps we can look to another culture for help? There is a live dialogue about usury within Islam, and the development of successful business models based on Islamic finance has been an interesting feature of recent times.

In speaking of Islamic finance some caution is in order, because there are no authoritative Lateran Council pronouncements here; instead the interpretation of Islamic law is a matter for scholarly dialogue, with different authorities applying different emphases and interpretations.

However, we can say that riba is forbidden within Islam and that riba certainly includes usury, in the simple original sense of interest payments. The basic concept of a fair trade according to Islamic understanding is an exchange in which both sides have clear ownership of the items to be exchanged, the things exchanged are genuinely equivalent, and the deal takes place now. An exchange where the values differ, or where part of the deal is deferred, is likely to be riba, and so unacceptable, and interest is very definitely off the table.

A second thing ruled out in principle is gharar, roughly deception or uncertainty of return. The parties to any deal must know in advance what their commitments are, so any form of gambling is ruled out and any payments that are speculative or variable are likely to be unacceptable too.

However, most deals which involve an exchange of money for goods are likely to be deemed acceptable, and investment, where risks and profits are shared, is generally a permissible alternative to lending.

That makes a good deal of sense. However, in practice Islamic finance tends to be caught in a dilemma, either restricting so much that useful deals are ruled out or allowing such a close replication of mainstream western finance that the supposedly Islamic rules make no real difference.

Still, there may be useful middle ways. Interpreted narrowly, Islamic rules forbid a number of transactions that are common and useful in non-Islamic circles, notably ordinary mortgages for house purchase. A lot of thought has been given to how the benefits of a mortgage can be provided without charging interest, and several models developed. One of these, for example, is murabahah, in which the bank buys the house and agrees to sell it to the buyer in manageable instalments, with the payments including a reasonable profit for the bank.

Such a deal has some distinct advantages because the payments are fixed at the beginning; there is no possibility of an uncontrolled spiral of debt. Because the bank arguably does not take any risk (the payments still being fixed even if the value of the property subsequently falls), not everyone considers it acceptable within Islamic principles; but still  the limitation of potential debt seems a sensible idea. Might that aspect not have some appeal even to non-Islamic borrowers?

Is it conceivable that Islamic finance will come to have a wider appeal in the west and help eliminate debt problems? The historic issues are still with us. On the one hand there is a tendency to want to construct ‘Islamic’ deals that mirror conventional ones so closely in their effects that the difference is nugatory. On the other hand, borrowers show an obstinate tendency to want to carry on doing the old deals and continue taking the old risks.

Because it works

Why do borrowers and lenders go on behaving like that? The ultimate reason, it must be conceded, is because it works – really well, most of the time. It meets real needs and enables new enterprise more effectively than anything else we’ve come up with.

Lending is ultimately a trade, after all, and we know free trade is always good, because (setting aside for the moment the interests of third parties) both sides have to see a benefit or the deal doesn’t happen. If both sides benefit, marginal unfairness is a minor concern, but in any case it tends to be eliminated in the long run. If the prevailing deals are slanted towards the seller, some buyers will tend to hold off, and it will pay enterprising sellers to offer better terms and grab more business, until the balance of advantage is corrected. This should hold for those providing loans just as much as anything else: if loans at interest favour the lender unfairly it ought to be in some lender’s interest to offer something better. Yet, with some exceptions and qualifications, this has never really happened. On the contrary, stern attempts to stop usury throughout history have consistently been undermined and eroded by the desire of borrowers to accept loans on terms that include unlimited interest, because simple loans at interest have many real advantages.

First, if lenders share the risk they expect to be involved in managing it. At the very least they will want a far more searching investigation of the borrower’s status and ability to pay than would otherwise be required: this is rarely welcome. They will want safeguards to ensure the payments can be delivered, which entails a continuing involvement with the borrower. In the end they may resemble, or actually be, shareholders in the borrower’s source of income, discouraging or preventing any course they see as inimical to their own interests. Many borrowers regard this as unhelpful, intrusive, or even damaging and would frankly prefer to take the whole risk and stake the outcome on their own free hand. After all, no-one plans to fail.

Second, safeguards come with a cost. If lenders need to put limits on possible future repayments they are likely to increase the ones they want early on to compensate. If your interest rate is going to be curtailed at some point, it will probably start at a higher point than it might otherwise have done to make up for it. Many borrowers, again, prefer to take the risk for a cheaper deal; some, in fact, can’t afford anything else. Their minds are on success more than failure, and so owning all the profit as well as all the risk seems a good proposition. If we mandate safer deals fewer deals will be struck and on the whole we shall all be a little poorer – unless that reduction of business is offset by the reduction in disastrous loan failures, with all the collateral damage they may entail. That necessary balancing act between benefits now and possible problems later may look like the kind of judgement that markets driven by human perception are not particularly good at.


If the unfair sharing of risk is the real problem, what could the solution be? Radically, we could ban loans altogether and insist that money should only be raised through investment; or to look at it another way, specify repayments not in terms of the capital but in terms of the borrower’s income. The evidence of history is that rules of this kind are doomed even if they can be promulgated; but perhaps it’s worth reviewing some options?

So what if a mortgage contract were, not for interest on the capital but a fixed percentage of the borrower’s income for a fixed period? Lenders, as we noted, would have to make especially careful assessments of borrower’s future earnings (unwelcome but surely not altogether a bad thing?) and take precautions against manipulation. Some mortgage borrowers would fall on bad times and never repay the capital as a result, but they would retain the property nevertheless. Other borrowers would become successful beyond expectation and repay royally, far beyond the original capital. These wealthy borrowers would offset the losses to the failures; with luck and careful management they would offset them altogether, removing the need for higher rates to pay for the novel terms. The rich borrowers would obviously be unhappy and collecting from them might sometimes be challenging. Still, overall the scheme would be redistributive in a way some might find attractive. For commercial loans the effect might look perverse in certain lights – rewarding failure and penalising success – on the other hand it would minimise the incidence of bankruptcy, reducing the general trauma and economic damage that entails; and the ‘penalties’ for success would be guaranteed to be affordable. Whether the idea of redistributive home mortgages, say, appeals to you will probably depend on your view of the merits of equalising income generally – it’s a safe bet, at any rate, that they won’t be available at any time in the foreseeable future.

Less socially radical safety precautions are easy enough to imagine. No repayments beyond 50% of the borrower’s income, but with the term of the loan extendable if those payments fall short? No repayment beyond some multiple of the original capital? Reversion to simple interest once the total outstanding exceeds the original loan? Such things could be introduced by law, but the problem we keep coming back to is that borrowers themselves have generally preferred the simple loan, red in tooth and claw, because it’s simple and gives them a free hand.

What can we do? There seem to be two fundamental problems. The first is that people don’t pay enough attention to the worst case scenario and don’t appreciate how badly things could turn out. The second is that safer loans often carry costs; the lender offers less attractive rates and wants more control. What about that worst case scenario, though? Suppose it were laid out really clearly in advance, what would the two parties say? The borrower, we assume, would say “Yes, if we got into that situation it would be intolerable, but I’m happy because I’m sure it’s not going to happen.”

What about the lenders? Do they say “Yes, that’s what we expect in a percentage of cases – our borrower here could be one – and we need to be able to bleed those occasional people white in order to keep our rates low,” or is it “Yes, in the extreme case that could theoretically happen, but having looked into borrower’s circumstances we’re happy the risk is very small; in essence we agree that it’s not going to happen; anyway before we got near that we’d talk about other ways to help borrower out.”

Now if both parties agree that the worst case is so unlikely it need not be taken into account in advance, they ought logically to be willing to agree that it can be explicitly excluded without additional cost. If you ignore a contingency because the probability is negligible, you cannot have much serious objection to providing for it either. The lenders ought to be willing to agree in advance to some reasonable limit on how much in total they will finally take. We might adopt principles like those of the murabahah deal; or a simple limit might be expressed in various ways (a flat cash value for the maximum total the borrower will ever pay has the great merit of transparency) but it ought to be possible to agree in advance that the borrower will not simply be crushed beneath an indefinite growth in the interest due. All we need is that the reasonable expectations of both parties when the deal is struck are set out explicitly, consolidated and protected. It need not be unreasonable or costly to make this a requirement.

What of any lenders who refuse, who take the first line set out above; that occasional borrowers must be crushed in the interests of the business? Surely we can rightly call them usurers and bring in the law to stop them? They wrest from the poor man his property and his living. Woe to them!



  1. 1. arnold says:

    Is Eden (a) debt payment in the effort of our universe to be…
    …That we are participates in this effort…

  2. 2. Howard says:

    Your point well taken and worth study- however most people in the middle ages were serfs, were property rather than owning property- do you wish to bring back serfdom? Plus most people sought wealth through conquest. Didn’t they? You may as well ban money, your best hope to either beef up regulation, and is it that successful now, or to radically change society.
    Provocative thought experiment

  3. 3. john davey says:

    Its ironic that the chief robber barons of the “capitalist” world trade principally in one commodity – money issued and controlled by the state, backed by force. And when they lose money on the deal, if they lose enough of it to enough people its the nanny state (otherwise known as the taxpayer that bails them out.

    As far as the banks are concerned, its capitalism for you and me, but they can have an industrial-scale social security state to protect them from risks. And they pay enough politicians to keep it that way, particularly in the UK and the US.

    You want and end to usury ? Ban all corporate contributions to political parties.


  4. 4. john davey says:

    .. the problem of debt is a political problem, not an economic one. Debt has been growing hand in hand with the power of financial institutions since the early 70s. The profits are large (far higher than other industries) which creates ‘poltical leverage’ through the systemic bribery known as “campaign contributions”


  5. 5. SelfAwarePatterns says:

    This was interesting Peter. You should branch out more often.

    Based on the history you cover, interest lending seems like one of those things that are going to happen regardless of whatever laws society sets up. And from a macroeconomic perspective, it’s one of the mechanisms that maximize resource utilization in the economy, so any attempt to heavily curtail it would be counter-productive. For better or worse, it’s an essential feature of a developed economy.

    That said, I have to admit that personally, after digging out of debt many years ago, I now stay well away from it.

  6. 6. Callan S. says:

    Perhaps you’re arguing against calling it ‘lending’, Peter? Actual lending is like helping – this isn’t helping others. But that’s not the main issue, it’s that this self profit centric system is being supported by people saying borrowers must pay back all including interest – this is a moral push, yet the people pushing for it aren’t being paid.

    It could be described as fiscal hijacking of a moral system, where people morally support a parasitic behavior which itself does not support those morals and even drains from them. It seems moral that people pay back their loans, but really it’s just supporting selfish people who have made it look like its moral for them to be paid back.

    Though it’d be interesting to have usury system where there is an option to pay back interest in material goods that the person can generate. Grown fruit or vegetables, for example. They have to pay back the money loaned, but the interest can come in something they can actually produce themselves. Granted, you’d want to cap interest or you’ve made a slave system there.

  7. 7. Peter says:

    To restate my conclusion, I would essentially propose a redefinition. At the moment, if we speak of usury at all, we mean loans at excessive rates of interest. But even loans with moderate rates can turn nasty. We should redefine usury as lending with unrestricted liability for the borrower. I think all loans should have some final safeguard to ensure that there is a reasonable limit on the total the borrower can ever be obliged to pay. So it should be a requirement that if I borrow 100 simoleons, lender and I set out that the repayments and interest will never exceed some agreed number of simoleons (500, 1000, whatever). It’s complex (I hope it’s clear that I realise that) and there are other approaches (I like the murabahah mortgage, for example), but a requirement to set an explicit limit in all cases seems simple and hard to object to.

  8. 8. SelfAwarePatterns says:

    The objection I can see (which you covered in the post) is that any lessening of risk for the borrower increases risk for the lender, which lowers their incentive to enter the arrangement. They can compensate by charging higher interest, but if that is also limited, then get increasingly selective of borrowers and more invasive into the borrower’s business. As you noted, eventually they become a de facto shareholder in whatever the borrower is doing, which the borrower may not want.

    For the murbahah in particular, from the bank’s perspective, their risk increases. They become subject to real estate market fluctuations, larger share of homeowners bailing, etc. Which is likely to come with all the side effects noted above. Imagine the bank insisting on occasional tenant funded audits of the bank’s house to ensure the tenant is taking what the bank deems to be proper care of it.

    None of this is to say that I think predatory lending should be allowed, just that the line needs to be drawn carefully. Unintended side effects and moral hazards exist in all directions.

  9. 9. arnold says:

    There doesn’t seem to be a way to apply a social ‘thermal analysis’ to usury, unless one experiments in ‘conscious usury’…
    …by taking out a loan and in not paying it back, then seeing the resistance in oneself from having done such a thing…
    …by giving out a loan and having it not paid back, then seeing the resistance in oneself from having done such a thing…
    …by giving out a loan not expecting it to be paid back and seeing the resistance in oneself from having done such a thing…

  10. 10. Callan S. says:

    I saw a program today saying under Australian law there’s a limit on how much interest you can pay on a loan. However, in regards to loan recovery fees, particularly if it goes to court…the amount owed could go up considerably.

  11. 11. Jorge says:

    For those interested in this subject, I recommend reading “Debt: The First 5000 Years” by David Graeber. Far from factually perfect, but it has interesting ideas.

    As for my own personal opinion on these matters: business is risk. When you engage in a transaction, you are always gambling to one degree or another- there are implicit assumptions running behind the scenes in your brain about the future state of the world that anchors a ‘value’ to any particular object or service. Since these assumptions are often unwarranted, literally *any* transaction can be seen as risk-laden.

    Recognizing this fact does not mean that reclaiming usury as a word to describe certain extremely predatory and exploitative practices is unreasonable. I think it’s a good idea! Pay day loans, burdensome student loans, credit card companies with lax ethical standards… these are social parasites that profit by amplifying misery among the most vulnerable individuals in society. And describing them as immoral usurers seems completely legitimate to me.

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