Lending and borrowing for interest is a Sin!

Let me start with a disclaimer that I am not an expert in Banking or Finance. In fact, as my family and some of my friends know, I am pretty bad at handing and managing money.

Having admitted that, while thinking about subprime crisis and reading about ponzi schemes and loan defaults by some of the well known so-called Indian industrialists, I started wondering if the idea of lending and borrowing and the greed is the root cause of all this evil.

Being a hardcore Hindu, the best thing I like about Islam, is the principle that lending and borrowing for interest are sins! Perfect! I think at least half the financial troubles in the world may disappear if just this one rule is put in place. If not complete ban at least there has to be a ceiling on the amount that can be borrowed or lent, to help in case of emergencies, and education for deserving student.

Below are some of the consequences I could think of, of such a move.

Farmers in India may stop committing suicide because they are unable to repay the loan taken for growing crops; and may go back to the traditional low cost farming that may give less yield but is certainly without a debt burden and associated guilt of being a looser.

Banks may become venture capitalists or invest in stock market to make money giving boost to entrepreneurship and jobs!

Banks may start charging us for keeping our money safe. Banks in the developed markets and some private banks in India have already started doing this anyway, based on the amount in an account, as banking becomes more of a service than a way to earn money out of lending money.

Philanthropy may get a boost as people may find it unattractive to keep money in a bank and hence may try to ‘earn’ goodwill and personal obligation out of extra money than interest. This in turn may reduce greed leading to more happiness and less stress in life! Nirvana!!

That’s why ‘sahukari’ or ‘sud-khori’ (earning interest) always had a bad name in Indian culture. But nowadays it is legitimized for the sake of so called 'growth', to be used by crooks for their personal gains. As they say, if you owe a bank $100, it is your problem, but if you owe them $100M, it is their problem to make sure that you are afloat! Do we need growth to make a few people reach at the cost of a large majority or we want people to be happy? That's the question!

I know it's easier said than practice, though it seems to be the right thing to do. Now I realize why prophet Mohamed said it is a sin to earn interest out of your money!! Angel, I agree.

Another alternative could be, as they have in the US, make the rate of interest near zero. This may have the same effect without restricting lending and borrowing. That may be a reason why appetite for risk, innovation and entrepreneurship thrive in the US.

Think about it. I shall highly appreciate your thoughts.