Interest is the pillar of Fractional Reserve Banking which is contrary to the philanthropic objectives intended for beating the extremities of poverty and the creation of dignified channels of financial support for the down trodden with a view to achieve the lofty goal of egalitarian society in sustainable manner. In modern economics, Interest is regarded as the payment of the use of service of capital. Charlemagne defined usury as where more is asked than is given. According to Prof. Marshall, Interest is the payment made by borrower for the use of a loan. Prof. Keynes says that interest is the reward of parting with liquidity for a specified period. Prof. J. S. Mill considers interest as the remuneration for mere abstinences. The Islamic terminology for interest or usury is Riba which means excess, increase or addition. Riba is defined as trading two goods of the same kind in different quantities, where the increase is not a proper compensation. There are two types of Riba i-e Riba An Nasiyah and Riba Al Fadl. Riba An Nasiyah is defined as excess, which results from predetermined interest that a lender receives over and above the principle. Riba Al Fadl is defined as excess compensation without any consideration resulting from a sale of goods. Riba An Nasiyah is further classified into two types i-e Simple Interest and Compound Interest. Simple interest is the interest calculated only on the initial investment while compound interest is the reinvestment of each interest payment on money invested, to earn more interest.
The chief source of power for Mammonism is the effortless and endless income that is produced through interest. (Gottfried Feder)
Aristotle berated interest on the principle that it is a yield arising out of money itself, not a product of that for which money was provided. The father of modern day interest rate theory, Knut Wicksell in his book “Interest and Prices” reaffirmed the statement of Aristotle that money in principle is sterile. Sheikh Mahmud Ahmad in his book “Economics of Islam, A Comparative Study” says that all the theories of interest fail to answer the simple question: Why should interest be paid? According to him, the theory of price is the problem of exchange, whereas the theory of interest is a problem of distribution. The Scholastics championed the complete abolition of interest during their era. Martin Luther condemned anyone who charged interest as a thief, robber and murderer. John Whipple, a Rhode Island lawyer arithmetically proved the impossibility of long term interest in “The Importance of Usury Laws- An Answer to Jeremy Bentham” …….
“If 5 English pennies…. had been…...at 5% compound interest from the beginning of the Christian era until the present time (say 1850), it would amount in gold of standard fineness to 32,366,648,157 spheres of gold each eight thousand miles in diameter, or as large as the earth.” (P-48)
The father of modern economics, John Maynard Keynes contended that without the abolition of interest, unemployment cannot be eradicated. Silvio Gesell castigated interest on the basis that his sales were more often related to the price of money (i-e interest) than people’s needs or the quality of his products. Gesell also launched “Stamp Script Movement” to make money a public service for a use fee but all his efforts went in vain. In 1919, Gottfried Feder wrote a book “Breaking the Shackles of Interest (Brechung der Zinsknechtschaft)” about the implications of interest and wealthy bankers. His endeavors led Adolf Hitler to proclaim that the kernel of National Socialism is breaking the thralldom of interest. Margrit Kennedy, the ink-slinger about the negative consequences of interest is considered as the mother of anti-interestmovement in modern times. Thomas Greco in his book “Money: Understanding and Creating Alternatives to Legal Tender” says…
“The banks are continually making new loans and retiring old ones as they are repaid. In the aggregate, the debts owed to banks are increasing with the mere passage of time, because interest accrues over time. The money available to repay those debts, however, can be created only by the banks as they make additional loans.”
The history of laws has also incessantly lambasted interest and usury. The laws of Charlemagne categorically prohibited usury in 806 CE. In 850, the Synod of Paris excommunicated all usurers. Usury was also banned by Common Law. In 1275, Edward I of England passed the Statute of the Jewry which made usury illegal. The bygone French law punished usurer for the first time by a public and ignominious acknowledgement of his offence and was banished. The penalty of his second offence was hanging. The Communist Party of China proscribed usury in its revolutionary base areas in late 1920s and replaced it with credit cooperatives. The criminal law of North Korea (2009) in the chapter 5 titled “Criminal Violations of The Socialist Economic System” forbids usury under Article 118. The article prescribes a punishment of less than 2 years of Labor training for practitioners of usury and stipulates the same punishment for up to 5 years in case of large profits gained through usury. In similar chain of events, The Khyber Pakhtunkhwa Assembly in Pakistan unanimously passed the Prohibition of Interest on Private Loans Bill on September 19, 2016…To be Continued