A look at Islamic Loans vs Conventional Loans

The main difference between Islamic Banking and Conventional Banking arises on the charging of interest on loans without the lender taking a share of the risk involved in the investment of the loan; something traditionally known as usury. Usury is making money by lending money; put in other words, it is making money from absolutely nothing, and is exactly what is happening around the globe today on an absolutely massive scale.

Before the advent of Islam in Makkah, Jews were the main money lenders in the area, and it was common practice among them to lend money at high rates of interest. The coming of Islam however, condemned this practice in the following words, “Do not devour usury that doubles and redoubles. Be careful of your duty to Allah, that you may be successful in achieving what you want.” But why exactly does Islam, and not only Islam but even Christianity label usury as massive sin? Or put differently, how are we as people affected by the practice of usury?

Firstly, the charging of interest discourages people from working to earn money, and the value of work is undermined. Therefore money lies idle in banks as people are earning money over their bank deposits. This discourages investment, and risking money in business. It also discourages the borrower from borrowing money for investment, because the risks involved in borrowing are not shared by the bank so the borrower has to return his loan to the bank with the interest whether his business results in failure or success. Islamic banking on the other hand, is based on the concept of risk sharing. The bank enjoys a share in the profit of the company if it thrives, but also provides extensions for loan repayment if required, and shares the loss if the business fails, and in extreme cases, it may forgive the loan altogether.

Usury can also be seen as negative where morality is concerned. Unlike an Islamic Bank, a conventional bank, like any other business or company is interested in profit, and therefore interested in lending money to businesses that it expects will not fail, and in doing so, it does not take into consideration the moral hazard that the business may pose, or whether or not the business will bring with it any social welfare. For example, if a bank were to choose between lending money to an alcohol manufacturer, and a man looking to set up a school, the bank would choose to lend to the alcohol manufacturer, because it probably goes without saying that he will earn more profit than the man who wishes to set up the school. In this case, the bank has completely disregarded morality, and social welfare, in favor of profit and safe investment of its money.

Interest also acts as a tool that multiplies debt. Never did a better tool ever exist to usurp government, compromise principles, and to corrupt and divide people to an immeasurable extent in thirst for ever more money earned from nothing, and ever more negative financial power that comes as a result of it. So this brings us to what is probably the most harmful effect of usury: the concentration of power in a few hands. The best example of this is perhaps provided by the Bank of England, which even after nationalization in 1946 is still controlled by a group of private individuals. This makes the Bank the real, but hidden ruler of the nation, by making politicians nothing more than mere puppets controlled the banks, or more accurately, by international banking families. Interest has brought about a regime of slavery, where the slaves are not even aware of how they are being exploited. It is a regime of such slavery, where the insatiable thirst for money and power, means that those in control will go to any lengths to protect what they’ve got and try to capture more of it, even if they have to murder to do so.