At least not
if this advocate of Islamic finance is any guide (around 16.15 and 1.04.30).
Once the video is running, click on the rectangle at bottom right for full
screen view, and Esc to exit full screen view.
He puts the
bog standard argument favoured in Islamic finance, namely that lenders should
take a share of the profits in any business they lend to, rather than charge
interest.
Well the
first problem there is that a large proportion of lending goes to entities
which are not businesses and which cannot possibly make a profit: mortgagors.
Next, the
speaker argues that if interest is allowed, loans tend to go to those who can
provide collateral, who are, so he claims the rich.
Well if your
net assets are zero then you aren’t “rich”. But you might still be able to get
a 100% mortgage if you have a secure and reasonably well paid job.
As to
lending to a project or business that cannot come up with the requisite
collateral (i.e. a business not run by “rich” individuals), any lender/investor
will look for a relatively big return REGARDLESS of whether they charge
interest or take a share of the profits. And they’ll do that to pay for the
inevitable cases where what seems to be a viable project turns out to be a
lemon, and where in consequence the lender/investor makes a big loss because
there is no collateral to grab. So prohibiting interest won’t do much for asset
poor would be borrowers who claim to have viable projects in mind.
As for the
Muslims who point to the fact that in some cases, lenders charge
exorbitant rates of interest and exploit
debtors, well we’re all well aware of that. That’s why the authorities in the
UK and elsewhere have for a long time tried to control the activities of loan
sharks who prey on the less well off. So that particular “anti-interest” point
is not unique to Islamic finance.
Next, the Muslim
speaker in the video is a goldbug. That is he advocates what Keynes called that
“barbarous relic”: the gold standard.
And the
final nail in the “Islamic prohibition of interest” idea is that banks that
supposedly abide by Sharia law and the interest prohibition in fact charge
interest in all but name. E.g. see here.
Conclusion:
I’ve never paid much attention to Islamic finance, and will continue to pay
little attention to it.
(Hat tip to
Positive Money for the video.)
_________
PS (22nd July 2013).
While the unpleasant little creeps who make up the ranks of the
politically correct will doubtless want to accuse me of being a racist or
xenophobe for expressing the above sentiments, the sentiments are repeated in a
Financial Times article entitled “The best place to practice Islamic finance
has to be a divinity school”, by William Barnes. See here.
Also very intersting on this topic is the Halal Monk conversation with expert Ajaz Ahmed Khan: http://www.halalmonk.com/ajaz-ahmed-khan-sharia-compliant-finance.
ReplyDeleteThat “halal monk” link didn’t work when I tried. This is better:
Deletehttp://www.halalmonk.com/ajaz-ahmed-khan-sharia-compliant-finance
The article at the latter link says that long ago “when somebody took a loan off someone and he couldn’t repay it on time, his debt was automatically doubled. So in the new Muslim community rules were implemented to create a more level playing field and to stop the exploitation of the stronger versus the weaker.” So to some extent, the ban on usury was an attempt to deal with the latter outrageous practice. But that sort of practice is unheard of nowadays (except perhaps in the case of “payday loans” and loan sharks preying on those at the bottom of income scales.) So that argument for banning interest falls away.
Also I’ve long suspected that the disapproval of usury (both in the Bible and in Islamic literature) was a rather ham fisted attempt to deal with serious levels of inequality that occur in a totally free market. I.e. the problem was not interest as such: the problem was the various factors that give rise to inequality.