LEGITIMIZING USURY AND THE RISE OF CAPITALISM
In the New Testament, Jesus chased the money lenders out of the temple. Shylock, a money lender in Shakespeare's Merchant of Venice was reviled by his fellow citizens. Anti-semitism arose probably as the result of laws that only allowed Jews to be moneylenders in Europe. "Miser", "hoarding wealth" and other terms denoted the negative meaning of capital accumulation.
Today, of course, the accumulation of vast riches is applauded, as can be seen by the 'stardom' of such businessmen as Donald Trump. The legitimizing of usury in Europe by Christian religious leaders helped to develop the economic model of capitalism. How? Without bank loans, there can be no investment. Without interest on debt, there can be no bank loans. Bank loans and debt are crucial to continuing investments. Also, the stocks and shares developed in the 17th Century had one very important component: the forgiveness of debts made by investors. Yes, that’s right. Although we hold poor countries to the fire for debt repayment, if you invest in a company and it fails, you are not liable for debt. This frees capital to invest elsewhere.
Today, many capitalist countries are in fact debtor nations. I like to say we live in ‘debtism’ not capitalism because capital=profit minus debt.
I recommend the book The Web of Debt.
A student wrote on the topic of Sharia banking for her final paper in a previous semester. Here is an excerpt. Capital letters indicate referenced information (not blogged here.)
December 19, 2009
The Qur’an FORBIDS THE CHARGING OF INTEREST IN EXCHANGE FOR A LOAN, OR “RIBA” . The reason for this, according to the Qur’an, is BECAUSE IT HARMS THE HUMANE AIMS OF ISLAM TOWARDS MERCY, SOLIDARITY AND COOPERATION .
This is a founding principle that has shaped Islamic banking. The first ever Islamic savings bank was modeled on “profit sharing” which WAS STARTED IN THE EGYPTIAN TOWN OF MIT GHAMR IN 1963 . The Muslim Brotherhood founder Hassan al-Banna’s goal was TO PENETRATE THE WESTERN FINANCE SYSTEM, CORRUPTING IT FROM WITHIN IN HOPES OF CREATING A PARALLEL SYSTEM TO RE-ESTABLISH A GLOBAL ISLAMIC EMPIRE GOVERNED BY ISLAMIC LAW (SHARIA).
Islamic banking policy states that money should be used productively and investment activities should be dealt with in partnerships so that risks and rewards are shared by creditor and debtor alike. Also, according to sharia, excess capital (i.e. profits) ought to be put back into the community in the form of zakat (alms). This includes stocks, real estate investments, insurances, and currency swaps that are sharia-compliant (called sukuks). There are limits, though; SHARIA LAW PROHIBIT INVESTING IN CERTAIN INDUSTRIES OR PRODUCTS, INCLUDING ALCOHOL, TOBACCO, PORK, AND PORNOGRAPHY. THE QUR’AN ALSO FORBIDS USURY (as aforementioned), SO FINANCIAL TRANSACTIONS ARE STRUCTURED TO RELY ON INCOME IN THE FORM OF RENTS OR PROFITS FROM THE LOAN, TECHNICALLY NOT INTEREST. SUKUKS … ARE A TYPE OF ISLAMIC BOND BACKED BY OWNERSHIP OF A TANGIBLE ASSET THAT PRODUCES A FINANCIAL RESULT. Another popular instrument is the murabaha, ESSENTIALLY COST-PLUS FINANCING, WHICH INVOLVES THE SALE AND REPURCHASE OF A COMMODITY TO FUND A LOAN . Scholars must review banking products and cases to make sure that they adhere to the Qur’an. BUT DEFINITIONS OF WHAT IS ACCEPTABLE CAN VARY GREATLY, NOT ONLY FROM REGION TO REGION BUT FROM BANK TO BANK… AS EACH BANK HAS ITS OWN BOARD OF SCHOLARS .
After initial success in the late 1970s and 1980s, which was largely fueled by oil revenues, Islamic banking suffered serious setbacks. There were failures in Islamic banking integration in such countries as Egypt, Iran, Sudan, and Pakistan, and several banks went bankrupt after having over-leveraged their funds, which coincidentally violated the sharia tenet of avoiding excessive risk-taking. So new products were developed and banks branched out; that’s when sukuks came into the picture, among others. But since then, some have estimated that the SECTOR HAS EXPANDED AT A BRISK PACE OF BETWEEN 15% AND 25% ANNUALLY IN THE PAST DECADE… in fact, THERE ARE CURRENTLY (as of 2006) 250 ISLAMIC MUTUAL FUNDS WITH $300BN WORTH OF ASSETS UNDER MANAGEMENT AND 300 IFIs HOLDING OVER $250BN DEPOSITS…FURTHERMORE, $200BN IN ASSETS ARE MANAGED BY DEDICATED MUSLIM “WINDOWS” OR SUBSIDIARIES OF CONVENTIONAL BANKS .