Part 1 – A brief history
Wouldn’t it be fantastic if we didn’t have to pay interest on loans and if, after 7 years, the balance of our debt was forgiven? This would allow us a chance at a fresh start, to be productive and not enslaved to debt. It could give the extra boost needed to break the cycle of debt and move with confidence into a debt-free life.
What would be the benefits of interest-free loans? It would help people get out of debt sooner and empower them to become financially self-sufficient. “Not a chance!” I hear you say and, “Dream on”. Yet such provision exists. From a Biblical context, God gave the Israelites this command, which is still practiced among contemporary Jews. It is written in the Torah, also known as the Mosaic Law. Read on and I’ll explain.
Jews and Interest
In Biblical times, not only was a lender not allowed to charge interest to a fellow Israelite, furthermore, after 7 years, an outstanding debt was to be forgiven. By cancelling a debt after 7 years, underprivileged Israelites had the opportunity of climbing out of poverty and getting ahead. If, for instance, an individual or a family had placed themselves as slaves to a household in order to pay a debt to that household, after a lapse of 7 years their master was required to set them free from that debt. This provision alleviated the economic burden for less fortunate Jews and ensured that they wouldn’t end up or remain lifelong slaves.
Note that according to Mosaic laws, loans didn’t have to be strictly monetary; they could also be in the form of goods or property, which followed the same pattern as monetary loans – without interest.
“Every seventh year you shall grant a remission of debts. And this is the manner of the remission: every creditor shall remit the claim that is held against a neighbor, not exacting it of a neighbor who is a member of the community . . . You shall not charge interest on loans to another Israelite, interest on money, interest on provisions, interest on anything that is lent.” (Deut. 15:1-2b; 23: 19)
The lender was, however, allowed to charge interest for money lent to a foreigner: “On loans to a foreigner you may charge interest “ (Deut. 23.20). Even in this case, however, the lender was commanded to charge a fair interest rate. Mistreating a foreigner was prohibited: “You shall not wrong or oppress a resident alien, for you were aliens in the land of Egypt. (Ex. 22:21) This law is still practiced among Jews today. In business, when negotiating a loan, a secular lender will charge all customers interest as is normal practice, in the same way, that a Jewish lender may charge interest on money lent to someone outside the faith. From my research, there is no expectation that secular lending institutions make exceptions or accommodations for the lending laws written in the Torah or practiced by Jews within the Jewish religion. Unlike, for example, provisions secular banks make for Muslims (see below).
Muslims and Interest
In Islam, the prophet Mohammed adopted the Jewish practice of interest-free loans, and Muslims today still live by that law. Sharia law forbids interest to Muslims, whether from fellow Muslims or from non-Muslims. You can see that this poses a problem for Muslims living in the West. The Qur’an states:
O you who have attained to faith! Remain conscious of God, and give up all outstanding gains from usury, if you are [truly] believers;; for if you do it not, then know that you are at war with God and His Apostle. But if you repent, then you shall be entitled to [the return of] your principal [without interest]: you will do no wrong, and neither will you be wronged. (Quran 2: 278-279)
There is an interesting and extensive article about Islam and the prohibition on interest. The article also presents historical and contemporary comparisons on interest charges. In my research, I discovered that in recent years, banks in the USA, Canada, Australia, and across Europe, have quietly been accommodating Muslim students and Muslims who require loans in general. Banks call it Sharia-Compliant Finance. Take a request for a mortgage for instance; the Muslim client presents a bank with property he wishes to purchase; The bank, upon evaluation of proposal or request, buys that property, then adds a negotiated amount to benefit from the property, and charges the Muslim client a flat monthly rate over an agreed upon period of time. This monthly rate is not attached to interest rates and the client pays the same amount for the agreed number of years. Moreover, as mentioned above, financial institutions provide interest-free loans to Muslim students, and I also found out that anyone can bank at a Muslim Financial Institution.
At the beginning, I asked what the advantages of an interest-free loan would mean. It may be the difference between sinking deeper into debt or a helping hand; especially when we find ourselves in an emergency situation that may become exacerbated by high-interest rates be it on loans, mortgages or credit cards. An interest-free loan may help bridge a difficult financial situation; it may mean a leg up. Ultimately to qualify we may need to show a real desire to get out of debt; an interest-free loan should not be a means to enable us to keep repeating the cycle of debt. I’ll elaborate in Part 2 as we journey on and explore what other interest-free options may be available to us today.