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Islamic Banking

Mervyn K. Lewis and Latifa M. Algaoud

The prohibition of interest is the feature of Islamic banking which most distinctly sets it apart from conventional banking. To Western eyes, this seems a strange restriction, but Christian countries themselves maintained such a ban for 1,400 years. Islamic Banking asks why Islam has been able to maintain its stand. The book explores the intricacies of Islamic law and the religious and ethical principles underpinning Islamic banking. It then considers the analytical basis of Islamic banking and financing in the light of modern theories of financial intermediation, and identifies the conceptual issues to be overcome.  
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Chapter 8: Islamic and Christian Attitudes to Usury

Mervyn K. Lewis and Latifa M. Algaoud


THE LESSONS OF HISTORY Islam is the only major religion which maintains a prohibition on usury. Yet, it was not always so. In Ancient India, laws based on the Veda, the oldest scriptures of Hinduism, condemned usury as a major sin and restricted the operation of interest rates (Gopal, 1935; Rangaswami, 1927).1 In Judaism, the Torah (the Hebrew name of the Law of Moses or the Pentateuch, the first five books of the Old Testament) prohibited usury amongst the Jews, while at least one authority sees in the Talmud (the Oral Law which supplements the Written Scriptures for orthodox Jews) a consistent bias against ‘the appearance of usury or profit’ (Neusner, 1990). Under Christianity, prohibitions or severe restrictions upon usury operated for over 1400 years. Generally, these controls meant that any taking of interest was forbidden. But gradually only exorbitant interest came to be considered usurious, and in this particular form usury laws of some sort preventing excessive interest remain in force today in many Western countries (and some Muslim ones). This chapter examines the attitudes of the Christian Church to usury, and compares Christian doctrine and practice with the Islamic position.2 Our major focus naturally will be upon the medieval Christian Church. The Middle Ages usually refers to the period in Europe, between the disintegration of the Western Roman Empire in 476 CE and the onset of the Italian Renaissance, and covering an area stretching from Sweden to the Mediterranean. This was the period when the Church had...

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