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Journal of Business Ethics (2007) 72:115 Springer 2006 DOI 10.1007/s10551-006-9151-0
Usury and Just Compensation: Religious and Financial Ethics in Historical Perspective
Constant J. Mews
Ibrahim Abraham
ABSTRACT. Usury is a concept often associated more with religiously based financial ethics, whether Christian or Islamic, than with the secular world of contemporary finance. The problem is compounded by a tendency to interpret riba, prohibited within Islam, as both usury and interest, without adequately distinguishing these concepts. This paper argues that in Christian tradition usury has always evoked the notion of money demanded in excess of what is owed on a loan, disrupting a relationship of equality between people, whereas interest was seen as referring to just compensation to the lender. Although it is often claimed that hostility towards usury has been in retreat in the West since the protestant Reformation, we would argue that the crucial break came not with Calvin, but with Jeremy Bentham, whose critique of the arguments of Adam Smith, upholding the reasonableness of the laws against usury, led to the abolition of the usury laws in England in 1854. There has to be a role for law, whether Islamic or secular, in regulating nancial relationships. We argue that by retrieving the necessary distinction between demanding usury as illegitimate predatory lending and interest as legitimate compensation, we can discover common ground behind the driving principles of nancial ethics within both Islamic and Christian tradition that may still be of relevance today. By re-examining past ethical discussions of the distinction between usury and just compensation, we argue that the worlds religious traditions can make signicant contributions to contemporary debate.
KEY WORDS: usury, Interest, Bible, Islamic nance, middle ages, predatory lending, religion, nancial ethics
Introduction
Usury is no longer a concept frequently invoked in contemporary discussion of nancial ethics. The term evokes a vague notion of charging excessive interest that is difcult to clarify philosophically and is even more difcult to enshrine in legislation. If one accepts as ethically correct the principle of charging interest on a loan, namely demanding money over and above the principal of a loan, how can one establish what constitutes excessive interest? In the contemporary world of mainstream nance, the practice of charging interest is considered so normal, that it is...