Usury, no Interest or even Debt Relief?

According to Wikipedia “Usury is the practice of making unethical or immoral monetary loans that unfairly enrich the lender.” Some people went further. Historically, or rather religiously, even taking interest was frowned upon, to say the least. The image above depicts Jesus as he expells the usurars from the temple.

Thou shalt not give him thy money upon interest, nor give him thy victuals for increase.” (Leviticus 25:37 in the Old Testament)

“And if you lend to those from whom you expect repayment, what credit is that to you? Even sinners lend to sinners, expecting to be repaid in full.” (Luke 6:34 in the New Testament)

“O you who believe, you shall not take usury, compounded over and over. Observe God, that you may succeed.” (Al-‘Imran 3:130 in the Qur’an)

To sum it up: usury was a no go, interest taking was frowned upon and a call for debt relief was issued in a number of ancient societies.

Debt forgiveness is mentioned in the Book of Leviticus, in which God councils Moses to forgive debts in certain cases every Jubilee year – at the end of the last year of the seven year agricultural cycle or a 49-year cycle, depending on interpretation.

Debt forgiveness was also found in ancient Athens, where in the 6th century BC, the lawmaker Solon instituted a set of laws which canceled all debts and retroactively canceled previous debts that had caused slavery and serfdom, freeing debt slaves and debt serfs.

In addition, the Qur’an supports debt forgiveness:

If the debtor is in difficulty, grant him time till it is easy for him to repay. But, if ye remit it by way of charity, that is best for you if ye only knew. (Qur’an 2:280 )

(Source: Wikipedia)

But how is this related to microfinance? Interest rates lower than from informal moneylenders, suicides of credit defaulters, debt relief are just a few hints.

(photo by lds.org)

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2 thoughts on “Usury, no Interest or even Debt Relief?”

  1. Just found some more historical references in the Microfinance Transparent Pricing Supervision Handbook by Planet Rating:

    At very different times in history, radical criticisms against interest rates have appealed to very different arguments

    • In ancient Greece, Aristotle explained that “The most hated sort of [unnatural money-making], and with the greatest reason, is usury, which makes a gain out of money itself, and not from the use of it. For money was intended to be used in exchange, but not to increase at interest.”
    • Between the XI and XIII century, many religious scholars condemned usury as the fact of selling time, whereas as a gift of God to mankind, time shouldn’t be considered as a merchandise;
    • More recently, a Marxist criticism to interest rates put forward that interest rates exacerbated and increased the inequality between the rich and the poor, as the former could expand its control over the latter, for an amount that exceeds the amount of capital he actually owns.

    While there are moral, religious, and political motives in favor of interest rate / price limitation, there is actually no purely economic or financial argument that is convincing. In fact, most MFIs try to offer useful credit services to their clients, and their prices fairly reflect the cost of providing services to their particular target clientele. If clients continue to purchase these services, it can be assumed that it is because they represent a good deal to them, not only compared to other options, but because their businesses generate enough return on investment to cover the cost of borrowings (though there are yet no rigorous analytical studies that confirm this). In the meantime, trying to limit prices in order to prevent some abuses would force many lending institutions to either close their doors, or to shift to higher loan amounts which can be sustainably offered under the price cap.

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