How do the Main Religions View Ethical Banking?

Religious prohibitions on interest

The three great Abrahamic religions, Christianity, Judaism and their younger cousin, Islam have all at times prohibited interest-bearing loans. The Old Testament, part of all three religions, condemns the practice. Mosaic Law provides: “If you lend money to one of my people among you who is needy, do not be like a moneylender; charge him no interest”

In mediaeval times, the ban was taken seriously in Judaism, but was applied only to lending within the Jewish faith. There was no bar on lending to a non-Jew at interest. The Biblical verses refer to lending to a ‘brother’, and that was interpreted as meaning a co-religionist.

Christians, following more inclusive New Testament tenets, took the ban on interest to apply across the board, and regarded charging interest to anybody as the sin of Usury.

Relaxation of rules

Even in the Middle Ages, ways were found to evade the ban so that trade could be promoted and funded. A distinction was made between joint venture lending where the risk was shared, and simply charging for the use of money. Exceptions were made for financing sea voyages.

As agrarian economies gave way to modern capitalism, lending at interest became an essential part of the economic system. Protestant theologians had fewer objections than their Catholic forebears. Apart from anything else, they were commonly persecuted for their faith, and, as refugees, parted from their land and livings. Lending at interest became a replacement for other ways of making an income.

Over the years, the religious disapproval of usury faded. Modern churchmen and women appear to have no particular problem with the charging of interest, except when it is seen to be excessive and exploitative.

Orthodox Jews still pay what is often lip-service to the idea that interest is forbidden in loans between fellow Jews. Formal mortgage agreements sometimes include a clause to the effect that in the event of default in repayment, the lender may take a share of any increase in the property’s value as an alternative to accrued interest, but the clause is rarely activated.

Islamic attitudes

Islam, the newest of the three great monotheistic religions, has seen a revival of the historical anti-interest sentiments. After the fall of the Caliphate, and colonisation by Western powers, trade and banking were carried out in the Islamic world by Westerners. When Islamic lands became independent, the banks they established followed the Western model. But recently, banks have appeared specialising in providing the same services as the Western banking industry generally, except that interest, known as ‘riba’, is forbidden.

Vehicles for borrowing and lending rely on notions of profit-sharing in the case of commercial loans. The lender is deemed to be a partner in the enterprise with the borrower. In the case of personal mortgages or loans, the mechanism is for the lender to buy the property, and then rent it to the customer/borrower, with the instalments including an element of purchase, so that ownership is transferred at the end of the agreement.

These arrangements have a similar effect in many ways to borrowing and lending at interest, but it may be too cynical to see them as window dressing only. There are differences from the practices of non-Islamic banks, and the novelty of Islamic banking in itself leads to reflection on the nature of money.

In Islam, money in itself is not valuable; it only has value insofar as it is used, so it is not Islamic to make money from money. From this belief comes the practice of buying goods or property and then charging for use, rather than charging for the use of money itself. The closeness of the link between money and the items and services it can buy prevents money from becoming an abstract concept which can be manipulated simply in order to make it multiply, as in the ‘creative’ banking practices which preceded the recession.

It is notable that Islamic banks did not act like the Western ones in making unaffordable loans and mortgages, then dealing in them as derivatives in the period before the financial crash As a result, the Islamic banks did better than their Western counterparts during the crash itself. That may suggest that Western banks have something to learn from them about ethical banking. However, in the aftermath of the crash, as real economies became more affected, Islamic banks started to suffer too, as nobody was exempt in the end from the impact of the general down-turn.

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How do the Main Religions View Ethical Banking?