Interest - “Loan Cost” or “Sin”?

Violeta Isai () and Riana Iren Radu
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Violeta Isai: Faculty of Economics and Business Administration, Dunarea de Jos University of Galati, Romania

Economics and Applied Informatics, 2014, issue 2, 31-36

Abstract: Interest has appeared from the people need to borrow main agricultural products. Over the time, it has been the subject for many theories - for interest, and against interest- all of them having various reasons. Church has, in general, forbidden interest, but the economic reasons have won, considering fair to reward the creditor for the time passed from the moment of loaning, for the monetary devaluation because of inflation, and for the reason that money is a good which must produce profit. Nowadays, the interest rate and the way haw it modifies the report between demand and supply, is a very debated subject. The interest rate is an instrument in the hand of Governments and International Financial Organisms, and interest is used in the conventional banks from the entire world. But, in the system of Islamic Economy, interest is considered “a sin”, and the appearance of Islamic Banks is a proof for the efforts to introduce in the banking system of Muslim countries, a modality of financing which respects, from the religious point of view, what is allowed and what is forbidden.

Keywords: Conventional loan; Interest rate; Inflation; Cost of borrowing; Conventional bank; Islamic bank; Financing by partnership; Financing by commercial transactions; “Good loan” (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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