Muslim Knowledge Guide China: Loan Interest, Riba and Christian-Islamic Finance Ethics
Reposted from the web
Summary: This Muslim knowledge guide compares Christian and Islamic debates over charging interest on loans, covering biblical arguments, church history, loan types, riba, bank interest, Muslim scholar opinions, and the wider question of finance ethics in daily life.
This article has two parts. The first part covers how Christian scholars view interest, and the second part covers how Muslim scholars view it. You will find that both religions have similar diverse conclusions on interest, but their followers took different paths. This depends on which clergy members have more influence.
Original Title
Is It Wrong to Charge Interest on a Loan?
Author: Kevin DeYoung, Professor of Systematic Theology at Reformed Theological Seminary and Senior Pastor at Christ Covenant Church.
Last week, I posted some content from the Westminster Larger Catechism related to economics. In a place where the doctrine forbids usury, I added a note about loan-sharks. This drew sharp criticism from commentators:
Kevin, you know very well that usury in the Bible and 17th-century church doctrine was not defined as loan-sharks. It was defined as charging any interest rate greater than zero. You are free to think the Bible is outdated and wrong on this point. But please have the courage to stand up and say you think the Bible is wrong. Do not redefine words in the Bible to mean something they do not, just so you can claim you believe in the Bible when you actually do not accept it.
These words are powerful. This gentleman claims that the Westminster clergy opposed charging any form of interest under any circumstances, and he insists that I am wrong and the Bible is wrong.
I removed the notes because I could see that the points I tried to make in parentheses should not be taken as the correct interpretation. My views need a more substantial explanation.
What is at stake here?
Before we discuss the accusation that interest is not biblical, let us first understand everything at stake in this discussion. We might think that making money from interest is a unique profession for bankers, Wall Street people, and other seemingly super-rich bad guys.
But charging interest on loans is what your credit card company does.
It is what the big stores do when you buy a refrigerator.
It is what car companies do when they let you drive a new car off the lot with almost no down payment.
It is what your mortgage company does to make home ownership possible. It is how the government issues student loans, and essentially, it is what you do when you deposit money into a bank or buy government bonds.
You let others use your money because they promise to keep it safe and return it to you with interest.
None of this proves that charging interest is allowed by religious law, but it does mean that people who use the Bible to oppose interest should be ready to oppose and give up almost every part of the modern economy.
A brief history of usury
For most of church history, Christians have opposed charging interest on most loans. This makes sense when you consider the Bible's prohibitions.
According to Leviticus (25:37), you must not lend your money to your brother. Exodus (22:25) states that if you lend money to any poor person among you, you cannot act like a moneylender toward him, nor can you charge him interest.
Deuteronomy (23:20) says the same thing about loans within the Israelite community, but it includes an important warning: you may charge interest to a foreigner. We can understand why charging interest was often opposed.
But it would be wrong to think the church always opposed interest on every type of loan. Usury has always been considered a sin, but not all interest-bearing loans were seen as usury. There is a long history of defining usury as loans for survival rather than loans for capital. Loans in the Old Testament were for those who were destitute and poor, which is the clear context for the passages mentioned above in Exodus and Leviticus. When someone in a covenant community hits rock bottom, the best approach is to give them what they need, followed by a loan. One thing you cannot do is give them an interest-bearing loan. This situation calls for charity, as it is not an opportunity to make money at the expense of someone else's misfortune.
However, loans made as business or investment risks have historically been viewed as a different type of loan. In his book Banking, Justice, and the Common Good, Samuel Gregg examines the history of usury and the church: 'It seems no one seriously objected to people lending money to others.' There is even quite a bit of evidence showing that clergy provided a form of 'banking service' to their peers. To be sure, throughout most of Christendom, the church forbade Christians from charging interest, which is why banking became a business dominated by Jewish people. They were permitted to charge interest on loans (Deuteronomy 23:20). Consequently, Jewish people were often accused of being 'moneylenders,' and their unique role in the financial industry became a contributing factor to centuries of antisemitism.
However, over time, Christians became more careful in how they defined usury. The Fifth Council of the Lateran (1512-17) defined usury as 'nothing other than gain or profit acquired from the use of a thing that is essentially barren, without labor, cost, or risk.'
This means that if a lender provides money with labor, cost, and risk involved, they can charge interest without committing the sin of usury. Similarly, Calvin also spoke about acceptable and unacceptable usury. Making money off the poor is one thing, but if we must do business with the rich, usury is allowed. He believes that besides the principal, high interest should be paid to the creditor to make up for his losses. In short, reason does not lead us to admit that all usury should be condemned without exception (Commentary on Exodus).
Similarly, Ursinus points out in his Commentary on the Heidelberg Catechism that all fair contracts, including paying rent, fair compensation for any loss, partnerships, and purchases, are exempt from being called usury. In other words, not every kind of interest is usury. Some are, and some are not. It depends on whether the loan helps the borrower or is most likely to harm them. Ursinus wrote that there are many questions about usury, and we can judge them based on the rule set by Christ: do to others what you would have them do to you.
Given this history of the Christian church, especially the Reformed churches, it is unlikely that Westminster Theological Seminary would condemn every type of interest-bearing loan. What has been condemned—and will continue to be—is predatory lending. There is no doubt that some people in the financial industry have committed sins in their lending practices, and just because we cannot say every loan is usury does not mean that nothing is usury. For example, in many poorer communities, you will find institutions that charge astronomical interest rates to provide people with cash advances. Given the risks involved, are these higher interest rates reasonable? Or is this exactly the usury that Christians have always condemned—squeezing the last penny from the poor and driving them into bankruptcy? In the book The Ascent of Money, Niall Ferguson argues that the early days of banking were made up of such usurers, which is why I used the phrase in parentheses last week.
Conclusion
For most of human history, charging interest on loans has been controversial, as Jay Richards explains:
By modern standards, almost everyone was poor, and only a very few rich people had money to lend. So, any loan would involve a rich person lending to their poor neighbors, who might be their relatives, to meet basic needs like food. People hid their extra money away, so while a person might have the right to ask for their money back, charging a poor person a fee for the temporary use of money that would otherwise just gather dust seems immoral. Charging huge interest rates that cannot be repaid only makes things worse, because it takes advantage of a person's misfortune and ignorance. Therefore, given the historical context and the belief that money should not be valued above all else, banning usury makes sense. (Money, Greed, and Allah, page 140).
So, has the church changed its view on usury? No, but its definition has become more precise. Usury is not charging interest on a loan to offset the risk of the loan and the cost of giving up other uses for the money; it is unfairly charging fees on a loan by taking advantage of someone when they are in trouble. Considering the context of Old Testament provisions, this seems like a fair distinction.
I do not believe the Bible or the Westminster Confession forbids charging any interest under any circumstances. This is not the universal position of the church. Instead, it teaches that it is wrong to charge interest based on the issuance of a loan, rather than as a basis for providing fair compensation based on factors related to the loan. Bad banks, bad lenders, and bad loans still exist, but neither the Bible nor church tradition requires us to think that banks, lenders, and loans are bad simply because they are banks, lenders, and loans.
The following are the views of Muslim scholars, taken from the book Islamic Finance and Banking System:
Saleh argues that interest-related activities occurred while the Prophet was still in Mecca, at a time when there were very few Jews there. most Jews in Medina at that time were engaged in agriculture rather than commerce, and those who engaged in interest-based transactions were among the Emigrants (Muhajirun) and the Helpers (Ansar). O you who believe! Do not consume interest, doubled and multiplied, but fear Allah that you may succeed. (3:130) The prohibition above was revealed during the Battle of Uhud. The funds for the Battle of Uhud were raised through interest. Abdullah ibn Salam said that interest practices were widespread in Medina, and this happened after the Prophet passed away.
Shaltut (1974) argued that the Quran only forbids excessive interest. To him, it is the 'doubled and multiplied interest' that Allah condemns. The term for interest (riba) that existed before the founding of Islam did not mean turning 100 into 200, but referred to the different ages of camels.
Syeikh Muhammad Abduh was the Mufti of Egypt. In the December 1903 issue of Al-Manar magazine, he published a statement: 'Prescribed usury is not allowed under any circumstances. However, the post office does not view the funds it collects from people as loans for profit. Under the principle of safekeeping, these funds can be used.' (Homoud, 1985, p.122)
Jawish (1908) suggested that the interest mentioned in the Quran refers to interest on delayed payments that has multiplied, not interest on loans.
Redha (1929) believed that a person could borrow 100 dollars and sign a check for 120 dollars, and this practice is absolutely not interest. Interest arising from deferred payment only occurs when the due date of a debt is extended.
Maruf Dawalibi believed that reasonable interest rates should be allowed for production loans. Scholar Syeikh Abdul Jalil Isa also supported this view. At the 1951 International Congress of Comparative Law in Paris, Dawalibi said: 'The forbidden usury refers to usury on consumer loans, not production loans. Usurers exploit the needs of the poor in the former and make them poorer by imposing excessive usury on them.' Now that economic systems are established and many companies have been formed, most loans are issued for production rather than consumption. As civilization develops, it is necessary to consider how these legal provisions should be improved. (Homoud 1985 p.120)
Syeikh Tantawi published a fatwa in the newspaper Al-Ahram stating that interest from investment certificates issued by the National Bank of Egypt (Al-Ahli Bank) is not illegal.
Syeikh Tantawi issued two more legal rulings in November 1989 and 1991, declaring that bank interest is permissible under Islamic law. (Al-Zuhayli, 2003)
In a 2004 study on Indonesian views toward interest, Antonio surveyed 45 influential scholars. Among them, 24 believed that interest paid or charged by banks is not illegal. They argued that interest is only forbidden if it harms the recipient, and only excessive interest should be called usury. Scholars who supported the legality of interest included Ibrahim Hosen, former Indonesian President Abdurrahman Wahid, and Hasan Basri.
These are the views of Muslim scholars who support the legality of interest. In contrast, opposition to interest is represented by Al-Azhar University. At its second annual conference in 1965, the university resolved that any form of interest is illegal. Given the poor state of Egyptian society in modern times and my own observations while visiting Al-Azhar, the Egyptian people have not gained a better life because of the university's presence. In fact, their lives have become harder. Therefore, any statement issued by Al-Azhar holds no authority for me and is for reference only.
We often say the root of the modern Islamic world's backwardness is that we do not follow the teachings of the Quran, but it is worth thinking deeply about exactly where we went wrong. Banks play a decisive role in the development of modern civilization, and where there are banks, there is interest. You cannot imagine someone living in society today without using a commercial bank. Even Islamic banks, which claim not to charge interest on loans, collect fees from borrowers under other names. Otherwise, why would a bank lend you money for free? Even those internet preachers who talk big about how one can live in this world without touching interest still need to use commercial bank accounts to receive donations from their followers.
I found some inspiration while looking into Christian views on lotteries and gambling. Christianity clearly opposes gambling, but they have a different explanation for lotteries, which work on similar principles. The Nanjing Union Theological Seminary believes that lotteries with a public welfare nature are acceptable, while gambling-like lotteries such as the Mark Six (liuhecai) should not be bought. It depends on the motivation and the consequences. However, some Islamic scholars take a one-size-fits-all approach to the same issue. They not only forbid any lottery behavior similar to gambling but even ban games like chess because they suspect gambling. This makes me worry about our future.
Although I do not believe Islam restricts the development of civilization, we must admit that some outdated rulings keep some people in a backward position. On the surface, some rulings seem like minor details, but in reality, they deprive people of the ability to think. If you do not allow people to try and fail, you cannot have innovation.
Finally, I have a question I would like to sincerely ask the scholars: Have you ever thought about whether the zakat, where Muslims give one-fortieth (2.5%) of their surplus wealth every year, counts as interest demanded by Allah from the believers?
Summary: This Muslim knowledge guide compares Christian and Islamic debates over charging interest on loans, covering biblical arguments, church history, loan types, riba, bank interest, Muslim scholar opinions, and the wider question of finance ethics in daily life.
This article has two parts. The first part covers how Christian scholars view interest, and the second part covers how Muslim scholars view it. You will find that both religions have similar diverse conclusions on interest, but their followers took different paths. This depends on which clergy members have more influence.
Original Title
Is It Wrong to Charge Interest on a Loan?
Author: Kevin DeYoung, Professor of Systematic Theology at Reformed Theological Seminary and Senior Pastor at Christ Covenant Church.
Last week, I posted some content from the Westminster Larger Catechism related to economics. In a place where the doctrine forbids usury, I added a note about loan-sharks. This drew sharp criticism from commentators:
Kevin, you know very well that usury in the Bible and 17th-century church doctrine was not defined as loan-sharks. It was defined as charging any interest rate greater than zero. You are free to think the Bible is outdated and wrong on this point. But please have the courage to stand up and say you think the Bible is wrong. Do not redefine words in the Bible to mean something they do not, just so you can claim you believe in the Bible when you actually do not accept it.
These words are powerful. This gentleman claims that the Westminster clergy opposed charging any form of interest under any circumstances, and he insists that I am wrong and the Bible is wrong.
I removed the notes because I could see that the points I tried to make in parentheses should not be taken as the correct interpretation. My views need a more substantial explanation.
What is at stake here?
Before we discuss the accusation that interest is not biblical, let us first understand everything at stake in this discussion. We might think that making money from interest is a unique profession for bankers, Wall Street people, and other seemingly super-rich bad guys.
But charging interest on loans is what your credit card company does.
It is what the big stores do when you buy a refrigerator.
It is what car companies do when they let you drive a new car off the lot with almost no down payment.
It is what your mortgage company does to make home ownership possible. It is how the government issues student loans, and essentially, it is what you do when you deposit money into a bank or buy government bonds.
You let others use your money because they promise to keep it safe and return it to you with interest.
None of this proves that charging interest is allowed by religious law, but it does mean that people who use the Bible to oppose interest should be ready to oppose and give up almost every part of the modern economy.
A brief history of usury
For most of church history, Christians have opposed charging interest on most loans. This makes sense when you consider the Bible's prohibitions.
According to Leviticus (25:37), you must not lend your money to your brother. Exodus (22:25) states that if you lend money to any poor person among you, you cannot act like a moneylender toward him, nor can you charge him interest.
Deuteronomy (23:20) says the same thing about loans within the Israelite community, but it includes an important warning: you may charge interest to a foreigner. We can understand why charging interest was often opposed.
But it would be wrong to think the church always opposed interest on every type of loan. Usury has always been considered a sin, but not all interest-bearing loans were seen as usury. There is a long history of defining usury as loans for survival rather than loans for capital. Loans in the Old Testament were for those who were destitute and poor, which is the clear context for the passages mentioned above in Exodus and Leviticus. When someone in a covenant community hits rock bottom, the best approach is to give them what they need, followed by a loan. One thing you cannot do is give them an interest-bearing loan. This situation calls for charity, as it is not an opportunity to make money at the expense of someone else's misfortune.
However, loans made as business or investment risks have historically been viewed as a different type of loan. In his book Banking, Justice, and the Common Good, Samuel Gregg examines the history of usury and the church: 'It seems no one seriously objected to people lending money to others.' There is even quite a bit of evidence showing that clergy provided a form of 'banking service' to their peers. To be sure, throughout most of Christendom, the church forbade Christians from charging interest, which is why banking became a business dominated by Jewish people. They were permitted to charge interest on loans (Deuteronomy 23:20). Consequently, Jewish people were often accused of being 'moneylenders,' and their unique role in the financial industry became a contributing factor to centuries of antisemitism.
However, over time, Christians became more careful in how they defined usury. The Fifth Council of the Lateran (1512-17) defined usury as 'nothing other than gain or profit acquired from the use of a thing that is essentially barren, without labor, cost, or risk.'
This means that if a lender provides money with labor, cost, and risk involved, they can charge interest without committing the sin of usury. Similarly, Calvin also spoke about acceptable and unacceptable usury. Making money off the poor is one thing, but if we must do business with the rich, usury is allowed. He believes that besides the principal, high interest should be paid to the creditor to make up for his losses. In short, reason does not lead us to admit that all usury should be condemned without exception (Commentary on Exodus).
Similarly, Ursinus points out in his Commentary on the Heidelberg Catechism that all fair contracts, including paying rent, fair compensation for any loss, partnerships, and purchases, are exempt from being called usury. In other words, not every kind of interest is usury. Some are, and some are not. It depends on whether the loan helps the borrower or is most likely to harm them. Ursinus wrote that there are many questions about usury, and we can judge them based on the rule set by Christ: do to others what you would have them do to you.
Given this history of the Christian church, especially the Reformed churches, it is unlikely that Westminster Theological Seminary would condemn every type of interest-bearing loan. What has been condemned—and will continue to be—is predatory lending. There is no doubt that some people in the financial industry have committed sins in their lending practices, and just because we cannot say every loan is usury does not mean that nothing is usury. For example, in many poorer communities, you will find institutions that charge astronomical interest rates to provide people with cash advances. Given the risks involved, are these higher interest rates reasonable? Or is this exactly the usury that Christians have always condemned—squeezing the last penny from the poor and driving them into bankruptcy? In the book The Ascent of Money, Niall Ferguson argues that the early days of banking were made up of such usurers, which is why I used the phrase in parentheses last week.
Conclusion
For most of human history, charging interest on loans has been controversial, as Jay Richards explains:
By modern standards, almost everyone was poor, and only a very few rich people had money to lend. So, any loan would involve a rich person lending to their poor neighbors, who might be their relatives, to meet basic needs like food. People hid their extra money away, so while a person might have the right to ask for their money back, charging a poor person a fee for the temporary use of money that would otherwise just gather dust seems immoral. Charging huge interest rates that cannot be repaid only makes things worse, because it takes advantage of a person's misfortune and ignorance. Therefore, given the historical context and the belief that money should not be valued above all else, banning usury makes sense. (Money, Greed, and Allah, page 140).
So, has the church changed its view on usury? No, but its definition has become more precise. Usury is not charging interest on a loan to offset the risk of the loan and the cost of giving up other uses for the money; it is unfairly charging fees on a loan by taking advantage of someone when they are in trouble. Considering the context of Old Testament provisions, this seems like a fair distinction.
I do not believe the Bible or the Westminster Confession forbids charging any interest under any circumstances. This is not the universal position of the church. Instead, it teaches that it is wrong to charge interest based on the issuance of a loan, rather than as a basis for providing fair compensation based on factors related to the loan. Bad banks, bad lenders, and bad loans still exist, but neither the Bible nor church tradition requires us to think that banks, lenders, and loans are bad simply because they are banks, lenders, and loans.
The following are the views of Muslim scholars, taken from the book Islamic Finance and Banking System:
Saleh argues that interest-related activities occurred while the Prophet was still in Mecca, at a time when there were very few Jews there. most Jews in Medina at that time were engaged in agriculture rather than commerce, and those who engaged in interest-based transactions were among the Emigrants (Muhajirun) and the Helpers (Ansar). O you who believe! Do not consume interest, doubled and multiplied, but fear Allah that you may succeed. (3:130) The prohibition above was revealed during the Battle of Uhud. The funds for the Battle of Uhud were raised through interest. Abdullah ibn Salam said that interest practices were widespread in Medina, and this happened after the Prophet passed away.
Shaltut (1974) argued that the Quran only forbids excessive interest. To him, it is the 'doubled and multiplied interest' that Allah condemns. The term for interest (riba) that existed before the founding of Islam did not mean turning 100 into 200, but referred to the different ages of camels.
Syeikh Muhammad Abduh was the Mufti of Egypt. In the December 1903 issue of Al-Manar magazine, he published a statement: 'Prescribed usury is not allowed under any circumstances. However, the post office does not view the funds it collects from people as loans for profit. Under the principle of safekeeping, these funds can be used.' (Homoud, 1985, p.122)
Jawish (1908) suggested that the interest mentioned in the Quran refers to interest on delayed payments that has multiplied, not interest on loans.
Redha (1929) believed that a person could borrow 100 dollars and sign a check for 120 dollars, and this practice is absolutely not interest. Interest arising from deferred payment only occurs when the due date of a debt is extended.
Maruf Dawalibi believed that reasonable interest rates should be allowed for production loans. Scholar Syeikh Abdul Jalil Isa also supported this view. At the 1951 International Congress of Comparative Law in Paris, Dawalibi said: 'The forbidden usury refers to usury on consumer loans, not production loans. Usurers exploit the needs of the poor in the former and make them poorer by imposing excessive usury on them.' Now that economic systems are established and many companies have been formed, most loans are issued for production rather than consumption. As civilization develops, it is necessary to consider how these legal provisions should be improved. (Homoud 1985 p.120)
Syeikh Tantawi published a fatwa in the newspaper Al-Ahram stating that interest from investment certificates issued by the National Bank of Egypt (Al-Ahli Bank) is not illegal.
Syeikh Tantawi issued two more legal rulings in November 1989 and 1991, declaring that bank interest is permissible under Islamic law. (Al-Zuhayli, 2003)
In a 2004 study on Indonesian views toward interest, Antonio surveyed 45 influential scholars. Among them, 24 believed that interest paid or charged by banks is not illegal. They argued that interest is only forbidden if it harms the recipient, and only excessive interest should be called usury. Scholars who supported the legality of interest included Ibrahim Hosen, former Indonesian President Abdurrahman Wahid, and Hasan Basri.
These are the views of Muslim scholars who support the legality of interest. In contrast, opposition to interest is represented by Al-Azhar University. At its second annual conference in 1965, the university resolved that any form of interest is illegal. Given the poor state of Egyptian society in modern times and my own observations while visiting Al-Azhar, the Egyptian people have not gained a better life because of the university's presence. In fact, their lives have become harder. Therefore, any statement issued by Al-Azhar holds no authority for me and is for reference only.
We often say the root of the modern Islamic world's backwardness is that we do not follow the teachings of the Quran, but it is worth thinking deeply about exactly where we went wrong. Banks play a decisive role in the development of modern civilization, and where there are banks, there is interest. You cannot imagine someone living in society today without using a commercial bank. Even Islamic banks, which claim not to charge interest on loans, collect fees from borrowers under other names. Otherwise, why would a bank lend you money for free? Even those internet preachers who talk big about how one can live in this world without touching interest still need to use commercial bank accounts to receive donations from their followers.
I found some inspiration while looking into Christian views on lotteries and gambling. Christianity clearly opposes gambling, but they have a different explanation for lotteries, which work on similar principles. The Nanjing Union Theological Seminary believes that lotteries with a public welfare nature are acceptable, while gambling-like lotteries such as the Mark Six (liuhecai) should not be bought. It depends on the motivation and the consequences. However, some Islamic scholars take a one-size-fits-all approach to the same issue. They not only forbid any lottery behavior similar to gambling but even ban games like chess because they suspect gambling. This makes me worry about our future.
Although I do not believe Islam restricts the development of civilization, we must admit that some outdated rulings keep some people in a backward position. On the surface, some rulings seem like minor details, but in reality, they deprive people of the ability to think. If you do not allow people to try and fail, you cannot have innovation.
Finally, I have a question I would like to sincerely ask the scholars: Have you ever thought about whether the zakat, where Muslims give one-fortieth (2.5%) of their surplus wealth every year, counts as interest demanded by Allah from the believers?
