Analysing the Present State and Future Agenda
- Studies in Islamic Finance, Accounting and Governance series
Chapter 8: Elimination of interest: from divine prohibition to human interpretation
The divine texts of the three main monotheistic religions, namely Judaism, Christianity and Islam, prohibit interest on loans. However, the way the religious scholars of all three religions have interpreted the prohibition did not succeed in eliminating interest on loans. Human history is thus a history of failure to implement the human interpretation of divine prohibition of interest on loans. Throughout history, there has been a temptation among the religious elite, reformers and social workers to devise some legal mechanism for abolishing interest. Some of them launched a relentless struggle to achieve this objective. Unfortunately, almost always, legal solutions of the problem led to two outcomes. First, there developed a black market for interest-bearing credit, pushing the rates of interest even higher and thus defeating the very purpose for which interest was banned by the law. Second, people were induced to devise series of subterfuges to camouflage interest so as to bypass the legal sanctions. Evidence of this latter outcome can be seen in the form of a long list of subterfuges which Islamic financial institutions have devised in the present time. At the beginning the religious leaders of Judaism and Christianity tried to harness political support to implement the ban on interest.
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