Usury Research Articles

Usury enforcement as an alternative to capital taxation in pre-modern states

AbstractAll governments have an obligation to protect their territory and the wealth within that territory from external predation. In fact, since war has historically resulted in the plunder and destruction of wealth, it seems straightforward to suggest that the cost of providing adequate defense of one’s territory is a function of the accumulated wealth within the territory. Suppose that all wealth in society is capital. The accumulation of capital conveys a private benefit to its owner, but imposes an external cost on society. As with any externality, the optimal tax policy would be to tax capital. The revenue from capital taxation could then be used to finance defense. Such a taxation scheme, however, requires the state has an appropriate level of bureaucratic capacity. During the Middle Ages and the early Renaissance, this sort of state infrastructure did not exist. Yet the rulers of those states faced the same constraint. In this paper, I argue that the enforcement of usury laws during this period replicate the outcome of the optimal capital tax. Lending at interest was prohibited. However, rulers often allowed certain groups to lend in society in exchange for a license fee. This granted monopoly status to lenders. At the same time, rulers imposed binding price ceilings on interest rates. The combination of these three characteristics of enforcement replicate the long-run restriction on capital accumulation of the optimal capital tax and generate revenue that is possibly equivalent to the tax as well. I then model ruler behavior given these incentives. Finally, I use historical evidence from England, Italy, and France to support my argument.

Law and order? Associations between payday lending prohibition and alternative financial services use by degree of enforcement

AbstractSixteen jurisdictions in the United States prohibit payday lending through stringent usury laws or well‐established nonprofitable 36% interest rate caps. Yet over one in 10 consumers residing in these jurisdictions borrowed payday loans in the past 5 years. This raises questions about actual policy implementation and enforcement. We employ data from the 2018 National Financial Capability Study to investigate if associations between payday lending prohibitions and payday borrowing differ by degree of enforcement. We find that nuances in degree of enforcement among restrictive states are not associated with payday borrowing likelihoods. However, these nuances appear when examining payday borrowing frequency, particularly when controlling for consumers' financial circumstances and when conditioning on alternative financial services consumers. We consistently note the highest borrowing behaviors for states sans regulation. Policymakers may consider strengthening enforcement in cases where the primary goal is preventing or reducing payday borrowing.

FinTech and banks: Strategic partnerships that circumvent state usury laws

This paper investigates the role of interest rate regulation of consumer credit and institutional risk segmentation in FinTech lenders’ efforts to solicit new customers in the personal loan market. We find that strategic partnerships between FinTech companies and specialist banks target marginal-risk, near-prime and low-prime consumers, living in states with low interest rate ceilings for unsecured personal loans. In partnering with the specialist banks, the FinTech lenders are able to take advantage of federal preemptions from state rate ceilings to lend profitably to higher-risk consumers in states with low rate ceilings to compete in these markets. We also show that when these partnerships are restricted, finance companies increase their credit supply.

Bank Interest in the Contemporary Era: Problem of Ad'afan Muda'afah Interpretation in Determining Law of Usury

Usury in Islam is a prohibited system in the Qur'an and hadith. The system is not recognized in the modern banking system, leading to different opinions among Muslims in determining the legality of bank interest. Therefore, this research aimed to explore the contemporary law of bank interest, focusing on the different opinions among the mufasir on the definition of Ad'afan Muda'afah as a basis for determining the legality of usury. A normative method was adopted, and a literature review of several scholars was conducted on usury law and the interpretation of Ad'afan Muda'afah. The data was analyzed considering the modern banking system within the framework of Islamic law, particularly Maqashid Shari'ah. The results showed that the difference in the illat used for bank interest law varied in legal conclusions. Despite efforts to forbid bank interest, Muslims did not attain a definite solution to avoid this issue. Consequently, bank interest was temporarily sanctioned under certain conditions such as not being compounded, having low interest, and not comprising any form of persecution. To address this problem, Muslims should support the existence of Islamic bank producing muamalah products according to Islamic Sharia.

Credit Cars: Or How I Learned to Stop Worrying and Love Auto Loans

Drawing on trade publications, contemporaneous newspaper stories, and other historical sources from the early twentieth-century United States, this article explains how installment plans overcame moral and business concerns to become the standard way people bought cars. Prominent figures in the automobile industry and financial institutions initially denounced the idea of selling cars on credit, and many banks declined to extend credit to would-be auto buyers. However, the relevant legal infrastructure heavily favored creditors, allowing them to circumvent usury laws and guaranteeing their right to repossess assets if borrowers missed payments. When the profit-making that these aspects of the law enabled became clear, moral objections to the idea of selling cars on credit yielded to a new moral consensus among powerful actors that valorized buying cars on credit and concentrated disapprobation on just those borrowers who defaulted on their payments. Thus, the characteristics of the legal infrastructure functionally presupposed the resolution of the erstwhile debate about the fundamental morality of selling cars on credit. Ultimately, lending practices building on the legal and moral foundation established in the early twentieth century led to the establishment of subprime auto lenders whose business model revolves around exorbitant interest rates, high fees, and aggressive repossession.

Pandangan Abdullah Saeed Tentang Riba: Teks dan Konteks Ekonomi Islam

The aim of this research is to determine the interpretation of usury using Abdullah Saeed's views. The method used is a qualitative method with a literature review type with data collection techniques using context analysis. The results obtained are that Abdullah Saeed is a Muslim scholar who has the concept of contemporary thought with various brilliant ideas by creating the values ​​of hierarchical principles. Seed has interpreted everything that is still being discussed in circles, one of which is usury. Usury does not necessarily mean that it is haram. According to Saed, there is a need for references from historical narratives to see a problem, such as covering the scope of a law, not necessarily directly legalizing usury law itself. Likewise, humans do not have to always prioritize the `illah aspect (literally in the text of the Qur'an) by ignoring the reasons underlying its interpretation (hikmah). The haram labeling of usury is a view only from the 'god' side, without using wisdom. So, if we look at usury from the perspective of `illat, it is clearly considered haram. However, according to Saeed, the addition of bank interest to debtors is done for a moral aspect. The aspect is mutually beneficial to each other, where the debtor borrows to meet his needs and business, while the institution provides additional fees to the debtor who are due as sanctions and intimation profits to roll back the results of the additional fees

FinTech and Banks: Strategic Partnerships That Circumvent State Usury Laws

Previous research has found evidence suggesting that financial technology (FinTech) lenders seek out opportunities in markets that have been underserved by mainstream banks. The research focuses primarily on the effect of bank market structure, limited income, and economic hardship in attracting FinTech companies to underserved markets. This paper expands the scope of FinTech research by investigating the role of interest rate regulation of consumer credit and institutional risk segmentation in FinTech lenders’ efforts to solicit new customers in the personal loan market. We find that strategic partnerships between FinTech companies and specialist banks target marginal-risk, near-prime, and low-prime consumers for credit card and other debt consolidation loans. These FinTech-bank partnerships especially target marginal consumers in states with low interest rate ceilings. Mainstream banks largely avoid higher-risk consumers, and low rate ceilings inhibit consumer finance company lending, which historically has been the major source of personal loans for higher risk consumers and may compete with banks at the margin. In partnering with the specialist banks, the FinTech lenders are able to take advantage of federal preemptions from state rate ceilings to lend profitably to higher-risk consumers in states with low rate ceilings to compete in these markets.

The Indian Muslim Salariat and The Moral and Political Economies of Usury Laws in Colonial India, 1855–1914

Abstract This article examines the long-term response of the Indian Muslim salariat to the lifting of usury laws in British India in 1855. The salariat were a group of urban professionals and landed gentry in north India who emerged after the uprising of 1857. They espoused a self-conscious brand of Islamic modernism, a central feature of which was a reinterpretation of Islamic traditions pertaining to ‘rent on money’ (interest/usury). Hitherto, Islamic legal rules authorizing interest/usury transactions had been context-dependent, but, motivated by the colonial state’s abrogation of usury caps and a critique of prevailing Islamic legal norms, the salariat articulated a context-free interpretation of interest/usury in which the two were made distinct. Henceforth, interest transactions among Muslims were acceptable, but ‘usurious’ moneylending, conflated with ‘Hindu’ moneylending, was condemned. This pro-interest, anti-usury programme frequently fused Islamic exegesis with readings from European political economy. In turn, the salariat crafted a vernacular political-cum-moral economy that they sought to propagate among the Muslim masses. Nevertheless, by 1914 the salariat had largely disavowed this programme, convinced that the colonial state’s revocation of usury laws had produced a Hindu–Muslim wealth gap. Now a new conception of an ‘Islamic’ economy, in which all interest was anathema, materialized.

FinTech and Banks: Strategic Partnerships That Circumvent State Usury Laws

Previous research has found evidence suggesting that financial technology (FinTech) lenders seek out opportunities in markets that have been underserved by mainstream banks. The research focuses primarily on the effect of bank market structure, limited income, and economic hardship in attracting FinTech companies to underserved markets. This paper expands the scope of FinTech research by investigating the role of interest rate regulation of consumer credit and institutional risk segmentation in FinTech lenders’ efforts to solicit new customers in the personal loan market. We find that strategic partnerships between FinTech companies and specialist banks target marginal-risk, near-prime, and low-prime consumers for credit card and other debt consolidation loans. These FinTech-bank partnerships especially target marginal consumers in states with low interest rate ceilings. Mainstream banks largely avoid higher-risk consumers, and low rate ceilings inhibit consumer finance company lending, which historically has been the major source of personal loans for higher risk consumers and may compete with banks at the margin. In partnering with the specialist banks, the FinTech lenders are able to take advantage of federal preemptions from state rate ceilings to lend profitably to higher-risk consumers in states with low rate ceilings to compete in these markets.

Communication approach of Gopay’s digital alms platform

Background: According to the 2018 World Giving Index by the Charities Aid Foundation (CAF), Indonesia ranked first in the world giving index for the first time. However, the emergence of digital alms practices in Indonesia has sparked controversy surrounding their compliance with usury laws, a deeply held belief in Islam. This has created an enigma within the Islamic community, as the Indonesian Ulema Council works to establish legitimacy for these practices. Given the multi-layered nature of these practices in society. Purpose: This paper aims to elucidate how the provider, specifically GoPay in this case, communicates digital alms to the public and how the Islamic community in Indonesia perceives and accepts it as a customary practice. Method: A qualitative research approach was employed for this article, focusing on conducting in-depth interviews and examining future studies and regulations pertaining to digital alms programs. Results: The findings of this study indicate that the implementation of digital alms programs has prompted a shift in the community’s giving habits from traditional direct methods to digital methods. This shift offers convenience to donors, who now have numerous options available to them. However, it is important to note that traditional beliefs surrounding alms emphasize direct interaction between the giver and the receiver, raising concerns about the potential for manipulation of alms before they reach the intended recipients. While this innovation has gained significant traction within the Islamic community, the use of financial technology introduces the possibility of inaccuracies and raises questions about the acceptance of its processes. Therefore, additional coordination and oversight with relevant parties are needed. Conclusion: Introducing digital alms programs has engendered new practices within the community for activities like almsgiving, enabling cashless transactions. However, there are still challenges to address, including ensuring the reliability and integrity of the process. This requires collaboration and supervision among stakeholders. Implications: The introduction of digital alms programs has prompted a transformation in community practices related to almsgiving and similar activities by embracing cashless methods.

Analysis Of Riba (Usury) From A Religious Understanding Perspective Among The Community In Sungai Rantai

This article describes the problem of usury law from the perspective of public understanding. As for some of the Sungai Rantai people who consider usury to be a common practice that they have done since long ago from their ancestors, the Sungai Chain community considers usury to be a source of their livelihood because the profit they get is many times that of them. seek honest income or lawful livelihoods, therefore the Sungai Rantai community often commits acts of usury. It is said that usury is one of the major sins in Islam, because it leads to destruction. Therefore, providing understanding to the public actually aims to advance an economic system that is compassionate, more just, more balanced social relations and ethical values that are in line with Islamic teachings

PENGARUH PENGETAHUAN HUKUM RIBA TERHADAP PENGGUNA SPAYLATTER TERHADAP AKAD JUAL BELI

Spaylatter is a form of official loan provided by Shopee. This feature that carries the concept of "Buy now, pay later" allows people to enjoy the opportunity to use credit installments without having to have a credit card. However, legal issues arise in the perspective of Islamic law when these financial instruments are equipped with interest instruments, that is, when the borrower returns the loan, he is required to add to the principal loan. In the perspective of muamalah fiqh, the addition of the loan principal can be categorized as usury. The type of research used in this research is quantitative research, using a research instrument in the form of a questionnaire. With multiple regression analysis involving variable X, namely: x1 knowledge of usury law, x2 knowledge of the shopeepaylatter application and variable Y of buying and selling contracts. The results showed that the t count was 2.163 where the t count was greater than t table (2.163 > 1.67655) with a significant value of 0.036.

ADAM SMITH AS A MODEL FOR THE MODERN MONETARY-POLICY ECONOMIST

AbstractA key insight from Adam Smith is that economists should base their conclusions about a monetary institution or policy on a careful study of the history of that institution or policy, a study that includes the experiences of other countries. To illustrate Smith’s reliance on financial history we cover five current monetary problems that have close analogies with problems that Smith discussed: (1) inflation, (2) banking panics, (3) public debt, (4) usury laws, (5) central bank digital currencies.

Small credit through online platforms

ABSTRACT Small credit through online platforms bears the risk of excessive interest rates, high hidden costs and ruthless debt collection practices. At the EU level, they are partly unregulated, whereas Member States have taken specific measures to manage the risk or avail of general concepts of law that can be applied to small credit. Using specific credit offers for the sake of illustration, this article flags up relevant problems with small credit and current approaches to solve them. It also considers the current reform of the Consumer Credit Directive, which is expected to be adopted in 2023, and its potential effect on small credit providers. It concludes that substantive law already offers reasonable protection, and it will improve with the new Consumer Credit Directive, although there is much legal uncertainty in many usury laws. There is, however, a serious enforcement problem that allows dubious lenders to apply unlawful practices.

페트루스 요한네스 올리비의 대부이론과 ‘자본’ 개념

이 논문의 목적은 페트루스 요한네스 올리비를 중심으로 스콜라 경제철학에서 자본 개 념이 출현하는 맥락과 그 개념의 의미를 규명하는 것이다. 자본 개념이 생겨난다는 것은 대부 비판이 상대화된다는 것을 뜻하지 않는다. 대부는 여전히 규범적으로 비난받으며, 다 만 자본 개념은 대부 개념을 정교하게 제한하는 과정에서 등장한다. 자본을 단순한 돈과 구별 짓는 기준은 그 소유자가 상업적 투자 의도를 확고하게 가지고 있었는지 여부다. 자 본이라는 종자적 원인 은 자본가의 손에서 상업과정 속으로, 더 구체적으로 말하면 상인 의 손으로 이전되어 이윤 창출의 운동을 실현할 수 있는 도구적 힘 에 해당한다. 상업자본 의 운동과 투척운동에 대한 올리비의 유비적 분석은, 자본 개념이 임페투스 이론이라는 14세기 역학적 패러다임 분석에 따라 나타난 경제학적 범주임을 말해준다.

The Nature of Money in a Convertible Currency World

In a world where the means of exchange is convertible into the numeraire consumption good at a fixed rate, no one wants to hold money over time – and due to convertibility there is no means by which the Friedman rule can generate deflation. This is the environment we study in this paper in order to demonstrate that there is still a way to reach the first-best: institutionalize the naked shorting of the unit of account, or in other words establish a banking system.
 To motivate the benefits of a banking system, the environment has real productivity shocks that are constantly changing the optimal level of economic activity, so the optimal quantity of money is inherently stochastic. Efficiency in such an environment requires the capacity to expand the money supply on an “as needed” basis. We show how a debt-based payments system that relies on banks to certify the individual debtors’ IOUs addresses the monetary problem.
 This model explains (i) central bank monetary policy as a means of stabilizing the banking system and (ii) usury laws as means of promoting equilibria that favor non-banks over those that favor banks. Furthermore, by modeling a commercial bank-based monetary system as an efficient solution to a payments problem this paper develops a theoretic framework that may be used to evaluate central bank digital currency proposals.

A Better Madden Fix: Holistic Reform, Not Band-Aids, to Modernize Banking Law

Historically, state usury laws prohibited lending above certain interest rates, but in 1978 the Supreme Court interpreted the National Bank Act (NBA) to allow chartered banks to issue loans at rates based on where they were headquartered rather than where the loan originated. States like South Dakota virtually eliminated interest rate ceilings to attract business, incentivizing national banks to base credit operations there and avoid local usury laws. In 2015, however, the Second Circuit decided Madden v. Midland Funding, LLC and reversed long-standing banking practices, ruling that non-chartered financial institutions were not covered by the NBA and were therefore subject to state usury laws where the loan originated. The underlying reasoning for the court’s decision was well-intentioned and based on (a) an unwillingness to allow non-chartered institutions to function as pseudo-banks and (b) a desire to protect consumers. The court’s radical decision received widespread criticism, and empirical studies have demonstrated a noteworthy decrease in credit availability in the Second Circuit—negating the court’s own policy rationales. Since Madden, Congress and federal agencies have attempted an outright reversal, but none of their solutions address the Madden court’s fundamental concerns. This Essay argues that a Madden fix is needed, but the most effective solution must incorporate and address the Second Circuit’s underlying concerns.

The Spurious Pedigree of the 'Valid-When-Made' Doctrine

The “valid-when-made” doctrine holds that if a loan was not subject to a state usury law when it was made, it can never subsequently become so upon transfer. The doctrine is supposedly a “well-established and widely accepted” common law doctrine that is a “cardinal rule” of banking law endorsed by multiple Supreme Court decisions. This Article demonstrates the valid-when-made doctrine’s spurious historical pedigree. The doctrine is a modern invention, fabricated by attorneys for financial services trade associations in the appeals from the Second Circuit’s Madden decision. It rests solely on decontextualized and misinterpreted quotations from 19th century cases dealing with entirely different issues in usury law. Simply put, the valid-when-made doctrine is not valid, but made up.

Usury and Interest Laws: Their Roots in Christianity

Usury and Interest Laws: Their Roots in Christianity

Pemikiran Wahbah al-Zuhaili tentang Hukum Riba dalam Transaksi Keuangan pada Kitab Fiqih Islam Wa Adillatuhu

This research explains the problem of usury law and its interpretation in financial transactions personally conducted by the public in insurance institutions as well as bank interest from the thought wahbah zuhaili and provide the solution. According to him, usury is divided into the first three types, riba fadh, second, riba yad and third riba nasiah. Wahbah zuhaili argues that the forbidden interest is usury that multiplies both the little and the amount of interest obtained because it is the same as the rib element. The prohibition of usury (usurios) in Islam based on moral and humanitarian considerations because the essence of usury prohibition is the elimination of all forms of economic practice that cause injustice and injustice. And the impact of interest on the economy will lead to a slowdown in economic growth. This method of writing a journal is based on the study of the library by conducting an in-depth review of wahbah zuhaili's books, books, interpretations and writings on bank interest, usury and related to it. The purpose of this writing is to know the laws, practices of usury and solutions in order to avoid the practice of usury inflicted on the economy.