Is the Economic Crisis Driving Western Laws Closer to Islamic Laws on Interest Rate Prohibition?

Georges Cavalier ()
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Georges Cavalier: EDPL - Centre d'études et de recherches financières et fiscales - EDPL - Equipe de droit public de Lyon - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon

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Abstract: This paper investigates historical, philosophical, and economic aspects of Western laws regarding the evolution of interest prohibition in a loan contract. The study is part of a global project that compares French and Islamic laws, with the aim to propose solutions to interest rate issues often raised in international finance. On one hand, oil-related sources of cash are found in the Islamic world; it is therefore relevant for the Western world to understand Islamic interest prohibition in order to sustain Western development. On the other hand, the financial crisis that originated in the US has fueled a growing debate on interest rates, and one may even wonder if stricter regulation makes sense. The original Christian interpretation of the term usury may in fact not be too distant from the Islamic term Réba in the Persian language, and Riba in Arabic. Having analyzed the prohibition of usury in Canon law, this paper highlights how practice has tried to hold this traditional position in check. Today Western laws prohibit only " rapacious " interest rates, and one observes a general move towards more fairness in interest treatment in Europe. Therefore, in this new context, and given the fact that money now in both the West and Islamic worlds no longer plays the same role it did in the time of The Old Testament or Koran, should both systems perhaps try to converge? The conclusion is that the distance between the two worlds may not be as remote as it seems.

Keywords: Interest Prohibition; Financial Crisis; Law & Economics; Code of Hammurabi; Genucia Law; Aristotle; Parable of the Talents; Canon Law; Saint Thomas Aquinas; Contractus Tinus; Contractus Mohatra; Pothier; French Law; US Law; Payday Loans; Subprime Loan; Tax Treatment; Thin Capitalization (search for similar items in EconPapers)
Date: 2013
Note: View the original document on HAL open archive server: https://univ-lyon3.hal.science/hal-01508415v1
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Published in International Journal of Economic Perspectives, 2013, 7 (2), pp.47-56

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01508415

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