> If that's true, then it's fundamentally broken (assuming interest bearing loans of course). You will never have a sustainable economic system that is based on interest bearing loans
Yes we should all switch the current economic system which has been the root cause of societal development. And we should switch to a fairy-tail system which you describe but miraculously does not and has not ever existed. One where people will lend out money for free! Why don't you start us off? I'd like a free loan please.
> Not true. There are moral alternatives. If you want to start a business, pitch your idea to investors who are willing to put in money in exchange for a portion of the company.
This is hilarious because its just another form of lending which in fact does yield interest. How do you think the investors will track ownership of the company? Shares which appreciate aka big bad interest.
> There are alternatives that don't involve interest. You see it all the time in the auto industry where they have 0% loans.
There are strings attached to those loans and the average auto loan absolutely has a non-zero interest rate. We are currently experiencing a massive auto loan bubble. Handing out low interest loans indiscriminately is irresponsible and the cause of massive economic damage throughout history.
I think you are confused. The government is "taking out the loan" by issuing bonds and paying an interest rate to the bond buyers. So which side is unethical? The lender or the borrower?
> Great empires were built without interest.
Like which?
At the end of the day, nobody is going to lend money without financial incentive. Why accept the risk? If you disagree then ask yourself why aren't you loaning out YOUR money for free? I will happily accept a free loan.
I think part of the problem is that the GP is conflating debt leverage and interest. My understanding is that there have been societies essentially without debt leverage, and no societies without loan yield.
As far as interest, all non-altruistic loans have strictly positive yield. You can use contracts to shift payments around and nominally get rid of interest, but you can always calculate an equivalent interest rate from the loan's yield. In the middle ages, they discovered that an investment, an insurance contract, and a contract-for-difference (sale of profit) together (contractum trinius) could perfectly replicate the cash flows of an interest-bearing-loan.[0] Presumably the contractum trinius is what eventually lead to the Catholic Church allowing interest-bearing loans.
My understanding is that the joint ventures set up for Islamic finance end up having cash flows equivalent to interest-bearing loans, though perhaps with important differences regarding collateral and leverage.
The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan.
Now, I think there is some healthy debate to be had over the role of leverage and collateral in the economy, and also non-dischargeable debt like student loans.
> that the GP is conflating debt leverage and interest
I'm not :)
> The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan.
In Islam, any loan that contractually requires benefit to the lender is prohibited, and that benefit does not have to be cash either, it could be a service or something intangible. Any attempt to dance around the issue (e.g. by stitching together intermediate contracts) does not change the fact that it is still interest under the covers, nominally or not. Islam cares about the actual substance, not what people call it on paper. This is already established in the texts which anyone can look at. As such, contractum trinius is prohibited in Islam.
Proper Islamic finance shares risk between the investor and investee, loans are strictly an act of charity since they cannot take interest. By looking at history, we know that it is possible to have societies that do not rely on interest, but on proper risk sharing. They don't teach that in the popular economic books though.
Believe it or not, real estate owners back in the day were willing to sell their house in installments without upping the price. So neither of your suggestions apply.
Even with interest and predatory loans, people today are not buying properties until later anyway, so that's not really an argument.
Secondly, in Islam the government has duties to perform, including providing good quality of life to its citizens, something we don't see done by so many governments today. Housing goes under this.
What do you mean by debt leverage? I don't really see how you can have interest without allowing for borrowers to profit from that debt. Businesses use debt to finance their operations. I can get a mortgage and profit off the appreciation of my property.
I had never heard of that contractum trinius thing! But it really doesn't seem any different. The borrow has to pay insurance premiums to the lender instead of interest premiums. Its only different in name. Additionally, the borrow has to pay for a separate contract that will allow them to profit off the debt! That's debt leverage for you!
You're correct, they're just thinking they found loopholes around the issue. Islamic texts explicitly call out this behavior and prohibits it. You can't stitch together individual legal contracts to reach the goal of lending money with interest. You can't "kid" God.
> switch the current economic system which has been the root cause of societal development
Strawman argument, and red herring. Just because we rely on something immoral that brought some value does not mean that there isn't a superior solution.
> switch to a fairy-tail system which you describe but miraculously does not and has not ever existed
Proper Islamic finance exists and has existed and has built empires.
> One where people will lend out money for free!
That's only in a capitalistic society where the only way to raise capital is lending. No they won't lend money for free (except if they want to be charitable). The solution is that money would be invested and risk shared equally among both parties, investor and investee, not lender and borrower, it's very different.
> This is hilarious because its just another form of lending which in fact does yield interes
It's very different. With an interest bearing loan, if the company doesn't work out, the lender will come after the borrower with the full support of the law, taking not only his principal, but the interest on top, destroying the latter. With an investment, if it doesn't work out, then the investor has lost his money and is not owed anything. It's risk sharing.
> and the average auto loan absolutely has a non-zero interest rate
I'm aware, but I wasn't talking about the average auto loan. You see it all the time when auto manufacturers offer 0% loans on certain models because they want to sell.
> Handing out low interest loans indiscriminately is irresponsible and the cause of massive economic damage throughout history.
Poison is still poison, regardless of the amount. The solution is not to give out more poison.
> The government is "taking out the loan" by issuing bonds and paying an interest rate to the bond buyers. So which side is unethical? The lender or the borrower?
Both are unethical. The Islamic perspective is that both the lender and borrower are equal in terms of sin (assuming the borrower is not doing it out of literally a life or death situation, which let's be frank, the vast majority of people are not in such a situation).
> Like which?
Islam prohibits interest, look up the Islamic empires all the way until the Ottoman empire.
> nobody is going to lend money without financial incentive. Why accept the risk?
That's the whole point. Without financial incentive, loans in Islam are purely an act of charity. If you want to invest your money, you invest it in ethical means that involve proper risk sharing. Interest bearing loans aren't that, there are countless other ways to make money. There were and are many rich Muslims that did not make their wealth using interest, but through investments.
> What empires has it built since the Catholic church started allowing interest on loans?
What does this discussion have to do with the Church? Islam is a separate religion and system, and up until relatively recently (post WWII mainly) the Muslim world was not involved in interest. Even post WWII, there existed nations that did not deal with it (e.g. Kosovo). Furthermore, just because someone decides to abandon their religion or morals does not mean that we have to do the same. We take pride that Islam is the only religion left in the world that is the way it was when it was revealed, without corruption.
> How does that work for someone buying a house?
Firstly, the government is responsible for providing a good quality of life for its citizens. Secondly, people can save money and buy, or buy in installments like they did back in the day and still do today in some parts of the world. Finally, owning a house is not an end goal, that's very materialistic thinking. I understand that it one has to secure his future, but home ownership as per the Western or American view wasn't the norm historically as far as I know. Today there exists governments that provide housing for their citizens (e.g. the UAE).
I disagree with you on every point. Capitalism has lifted far more people out of poverty than charity. Its not even close.
Society should not remain poor and underdeveloped just to adhere to your religious beliefs. I just want to point out one last thing:
> It's very different. With an interest bearing loan, if the company doesn't work out, the lender will come after the borrower with the full support of the law, taking not only his principal, but the interest on top, destroying the latter. With an investment, if it doesn't work out, then the investor has lost his money and is not owed anything. It's risk sharing.
It's absolutely not different. A loan which receives interest in the form of equity is still interest. The lender provides capital in exchange for ownership over the company. Instead of being paid in cash, the lender is paid in equity that ideally becomes more valuable than the original loan amount. That is in no way a charitable act. Also you are not necessarily personally responsible for a loan to your business.
I bet you have never used a credit card, opened a savings account, worked for an employer that has debt, rented a home, rented a vehicle, bought a mortgage, taken a loan for education, made an investment, or ever have any relationship with a financial institution. /s
I'm still waiting for the name of a society that operated without debt or interest.
> Capitalism has lifted far more people out of poverty than charity. Its not even close.
This is not the argument. Islam does not prohibit all capitalistic practices, as a matter of fact, it's generally pro free market. All it does is it places some boundaries on unethical, immoral, and parasitic practices. Interest is one of those prohibited things. Everything else that is not prohibited goes. Furthermore, Islam pushes people to work and to be self sufficient and not rely on charity. https://sunnah.com/riyadussalihin:296
> Society should not remain poor and underdeveloped just to adhere to your religious beliefs
Strawman argument. The Islamic world during the Islamic Golden Age was prosperous and ahead of everyone in all facets of life, while the rest of the world was in the so called Dark Ages.
> Instead of being paid in cash, the lender is paid in equity that ideally becomes more valuable than the original loan amount.
The difference is in the contract. In an interest bearing loan, the lender is contractually owed a profit. This is not the case in a proper risk sharing model, where the investor is willing to accept a loss. Risk is shared proportionally among both parties. A borrower who defaults will have the lender come after him not just for the principal, but also for the accrued interest, with the full support of the law.
Incidentally, the Quran addresses your very claim that interest is the same as trade: https://quran.com/2/275.
It is very clear that interest is *not* the same as trading and ethical investments.
Renting a house or car is not an interest bearing transaction as I explain in another post here. One main difference is that a rented asset is consumed (e.g. subject to wear and tear), whereas "rented" money isn't. And since you're asking, yes I didn't take on a mortgage, nor opened a savings account (to be fair, the bank opened one for me, and I had to contact them repeatedly to close it).
Furthermore, we have narrations that there will come a time where even people who do not consume interest will be affected by it. We live in those times today, even dealing with fiat currency causes individuals to be affected by interest because it's money printed at will to cover the government's debts:
> I'm still waiting for the name of a society that operated without debt or interest.
All throughout Islamic history until the fall of the Ottoman empire and the subsequent colonization by the West, which pushed its financial institutions in Arabia.
> A borrower who defaults will have the lender come after him not just for the principal, but also for the accrued interest, with the full support of the law.
You have a very narrow understanding of loans. In fact, creditors lose money on loans all the time. Borrowers routinely escape paying out the entirety of their loans.
> Incidentally, the Quran addresses your very claim that interest is the same as trade: https://quran.com/2/275.
> It is very clear that interest is not the same as trading and ethical investments.
You logic is that because allah declares it so, then it must be true. It really is as simple as charging a fee for borrowing an asset. In the case of a cash loan, the asset is cash. You can perform all the mental gymnastics you want, but renting out a car or a property or capital is really all the same principle. You have drawn a silly distinction for equity based on your religion.
All the Islamic financial institutions still charge interest. They just use different names.
> In fact, creditors lose money on loans all the time. Borrowers routinely escape paying out the entirety of their loans.
Just because some lenders lose money, does not make the contract any less predatory or immoral. That's like saying that there are some people who don't wear seatbelts and make it out of accidents without issues. The very fact that the US has trillions of dollars of student and auto and mortgage debt is more than enough to illustrate how much of a disaster usurious money lending is.
> In the case of a cash loan, the asset is cash.
I already explained how it's not the same. A tangible asset is consumed, experiences wear and tear, needs maintenance, etc. Money doesn't need any of that, you get back your asset in pristine condition, plus more.
> All the Islamic financial institutions still charge interest
If they do, then they're not Islamic, regardless if they claim they are. It's quite simple, and many scholars have called them out. Calling something prohibited by a different name to make it palatable is already mentioned in our books, and is outright prohibited. Dancing around the issue by stitching together a series of permissible contracts to result in something that mimics interest is prohibited. We have narrations about this.
The so called "Islamic banks" are a recent problem as I mention in another post. It's one of the many effects of post WWII colonization, where the West forced its values on the lands it occupied.
Dude how do you even survive without participating in ANY interest? If you don’t have a mortgage, you must rent. That property was bought with a loan. You have any bank account or investments? Those institutions provide loans. Did you get an education? How did you pay for it? You gotta be filthy rich to afford all those things in cash.
I’m just amazed that people actually believe what you’re saying. I would never want to live in a society where I am forced to accept charitable scraps from the wealthy elite.
Tangibility is a dumb argument. The car and the property or whatever are being rented out for a profit INCLUDING maintenance costs. Money depreciates and the lender absorbs risk. There’s opportunity cost with money.
Loans can absolutely be predatory! There should be absolutely be proper regulation. But your suggestion that ALL interest is evil just tells me you have no idea how the world works.
You use products and services from companies which use interest. Your government uses interest. It’s all around you.
Not necessarily. But I do my part of not participating in the system, that's the least I can do. Similar to how boycotts happen, if enough people partake, change will come, until then, we stick to our values.
> You have any bank account or investments?
Yes, but I don't have a savings account.
> Did you get an education? How did you pay for it?
Fortunately, I didn't go to college in the US where the student loan industry is out in full force. There are other countries where college is affordable, and for people who can't afford it, provide true student aid. Not "student aid" as in federal loans, student aid where the college works with the individual person depending on his or her family's situation to work out a solution, including discounts.
Also, let's take a step back. Just why are colleges so unaffordable in the US? Easy loans play a big role. The universities see that there is easy money to be had, so they up their prices under false premises. It's basically supply and demand, where the supply is poor folks being pushed to take on crushing debt. It's a very parasitic cycle.
> I would never want to live in a society where I am forced to accept charitable scraps from the wealthy elite.
That's not what I said, it's a strawman fallacy. I said that in the Islamic position, loans are only done as an act of charity. However, Islam heavily encourages people to work and self sustain: https://sunnah.com/riyadussalihin:296. Where does it say to sit back and rely on charity?
The government has a responsibility to provide stable conditions and tackle issues like unemployment. This has nothing to do with interest.
> Money depreciates
Because of interest that the government takes on, forcing it to print more money to devalue the currency, see how this all works out?
Renting and loaning money are fundamentally different. Show me any car rental agreement that goes on for 30 years like a mortgage. That's just one difference.
> But your suggestion that ALL interest is evil just tells me you have no idea how the world works.
I do, and I can't help but be amazed and saddened that people keep crying at the many economic issues and crises that keep happening, not realizing that interest is at the center of the entire mess.
> You use products and services from companies which use interest. Your government uses interest. It’s all around you.
I do not deny it. All I can do is make people aware of the dangers, and that because interest is so prevalent, many of the problems we see today are going to stay until that changes: https://sunnah.com/mishkat:2818. Today, we are all affected by the dust of usury even if we don't partake in it.
Yes we should all switch the current economic system which has been the root cause of societal development. And we should switch to a fairy-tail system which you describe but miraculously does not and has not ever existed. One where people will lend out money for free! Why don't you start us off? I'd like a free loan please.
> Not true. There are moral alternatives. If you want to start a business, pitch your idea to investors who are willing to put in money in exchange for a portion of the company.
This is hilarious because its just another form of lending which in fact does yield interest. How do you think the investors will track ownership of the company? Shares which appreciate aka big bad interest.
> There are alternatives that don't involve interest. You see it all the time in the auto industry where they have 0% loans.
There are strings attached to those loans and the average auto loan absolutely has a non-zero interest rate. We are currently experiencing a massive auto loan bubble. Handing out low interest loans indiscriminately is irresponsible and the cause of massive economic damage throughout history.
https://www.thedrive.com/news/33065/zero-percent-financing-a...
> Raise capital in an ethical way.
I think you are confused. The government is "taking out the loan" by issuing bonds and paying an interest rate to the bond buyers. So which side is unethical? The lender or the borrower?
> Great empires were built without interest.
Like which?
At the end of the day, nobody is going to lend money without financial incentive. Why accept the risk? If you disagree then ask yourself why aren't you loaning out YOUR money for free? I will happily accept a free loan.