Usury

If we buy a cup of coffee and get charged for the coffee and also for (the act of) drinking the coffee, then we are being charged twice! We won't accept that and no sane cafe owner would dare charge you that way!

However, when we borrow money, we accept being charged twice. Once, for the payment of principle sum and second time for the privilege of using the money (interest).

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The Wikipedia defines usury as "charging a fee for the use of money". However, as it is now common practice in modern commerce to charge interests, usury is more commonly referred to as "excessive interests charged".

I used to think that only Islam forbids the charging of interests, but this is not so.

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"Usury (in the original sense of any interest) was denounced by a number of spiritual leaders and philosophers of ancient times, including Plato, Aristotle, Cato, Cicero, Seneca, Plutarch, Aquinas, Muhammad, Moses, Philo and Gautama Buddha." [Wikipedia].

In the Sermon on the Mount, Jesus emphasizes lending without concern for a return - or even repayment:

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If ye lend to them of whom ye hope to receive, what thank have ye? for sinners also lend to sinners, to receive as much again. But love ye your enemies, and do good, and lend, hoping for nothing again; and your reward shall be great, and ye shall be the children of the Highest, for he is kind to the unthankful, and to the evil. (Luke 6:35)

The Quran says the same thing:

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The usury that is practiced to increase some people's wealth, does not gain anything at God. But if people give to charity, seeking God's pleasure, these are the ones who receive their reward many fold. (Ar-Rum 30:39)

Aristotle wrote:

"Usury is detested above all and for the best of reasons. It makes profit out of money itself, not for money's natural object... Money was intended as a means of exchange, not for increase of interest."

Buddhist teachings on the Eightfold Path taught by the Buddha over 2500 years ago, includes “the right livelihood,” which says that one ought to avoid treachery, deceit, usury, exploitation, or other harm to humans or animals.

Even Jews were forbidden to practise usury to other Jews, but are allowed to do so beyond their community, ie. to non-Jews.

So it is surprising that the mainstream financial systems that are practised today are mainly interest-based. This is easy profits, and compound interest is accelerated easy profits that grow exponentially! :) To exacerbate the matter, in modern banking, monies are represented as mere electronic digits. Which means that it takes the same effort to count one billion dollars as it is to count ten dollars. So, for the same effort, banks make more money transacting a billion dollars, since computers don't wear off very much (if at all) counting bigger numbers. Hence, it is safe to opine that profits are good in modern banking! Besides, it is the borrower who bears most of the risks, not the lender, as loans are almost always collateralised.

Islamic banking is an attempt to level this playing field. In Islamic banking, both the borrower and the lender share the risks and profits, without the involvement of interests. They are also to fund projects which are for the greater good of both investor and investee, the community and the environment and not for profit maximisation. Islamic banking will not fund haraam activities, ie. activities that are considered detrimental to society, like gambling. In recent years, Islamic banking has gained popularity rapidly, and more surprisingly, among non-Muslims and countries without Muslim majority.

Let's hope this growth happens for noble reasons, since it would be tempting to disguise conventional banking beneath a thin layer of Islamic banking for profit maximisation.

Islamic banking also forbids the trading of financial risks, as it is considered as 'gambling', and gambling is a 'haraam' activity.

That said, big financial institutions and hedge funds have made financial risk management into a fine art. With big capital flows, clever algorithms, market research and computerisation, these institutions are capable of giving huge returns with great certainty in their trades.

Actually, it is faster for institutions to make money in the financial markets than in direct investments. This is not healthy as it means that good startup technologies and businesses will not get the investments needed to create tangible wealth. Sometimes businesses with noble objectives to bring society to a higher good are unable to take off without investments.

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With attractive returns from the financial markets, investors will be more motivated and tempted to multiply their money in there. Also, financial markets are zero-sum games. That means, when one wins, some others have to lose. And when big institutions win big, many small investors will have to lose. This does not help with wealth distribution.

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Communist countries have attempted state planning to distribute wealth which had failed miserably. I think communism was a noble ideology that could not overcome human greed and selfishness. What we need badly is a new way of distributing wealth, without destroying the fabric of society, freedom and the dignity of people.

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This gives rise to a new breed of entrepreneurs who call themselves 'social entrepreneurs'. Social entrepreneurs set out with noble objectives to improve the community sustained through profits. Some examples of such enterprises deal with providing clean drinking water, converting domestic garbage to energy, providing micro-loans to rural villagers, promoting eco-tourism, ecologically sustainable housing,... etc.

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Social enterprises focus on what value they bring to the society in the long term. So, typically, it won't be interested in businesses whose sole aims are to encourage more people to send sms messages on their mobile phones; or for the distribution of more chemically preserved fast food to the masses. Social enterprises will definitely not charge you twice for your cup of coffee. Instead, it might set up cooperatives among coffee growers so that they can sell their crops at a better bargain and have their proceeds used to set up village schools or better access roads to their plantations, benefiting everyone in the long term.

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There is a social enterpreneur who told me that in social enterprises, there are no exit strategies. He cited an example in a project in a village in Nepal where they succeeded in piping water to the hilltops and learned that the 3 hours up and down from the hill to the rivers made by the womenfolk each day was the only time they had away from their mother-in-laws. So, you see, there is still no exit strategy! When old problems are solved, new ones emerge! :)

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Whichever method that will become vogue, be it is Islamic banking, social enterprises, or otherwise, there is a need to balance the globalisation and the cut-and-thrust of the market economy. I am glad that there are many kind souls out there doing their part in this balancing act. Many of them unsung heros and silent achievers, without which many communities would have collapsed into more sufferings.

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With this balance, we would be living in a "capitalism with a human face". Though sounding stark in contrast to Gorberchev's "Socialism with a human face", they both seek to achieve the same - that is, to love people and to move money to where love is.