Pyramid Comment

This journal takes an alternative view on current affairs and other subjects. The approach is likely to be contentious and is arguably speculative. The content of any article is also a reminder of the status of those affairs at that date. All comments have been disabled. Any and all unsolicited or unauthorised links are absolutely disavowed.

Saturday, April 07, 2012

Usury And Parasitism

The most important difference between an Islamic loan and the 'western' concept of lending is viewing the loan as a moving target. The Sharia view is not difficult to understand. Neither is the 'western' concept. However, the two are very different. The non-Islamic goal is undeclared growth. The changing (by the day or just when expedient) moving target. At day-1 of an Islamic loan, the amount to be repaid at the termination of the loan is known. The non-Islamic lending is volatile and mercurial.

The interest rate at day-1 can be different to that at day-2, but by day-365 it will almost certainly be very different and any movement will have been...


It's all to do with how 'growth' is defined. Repayments will have changed over the term. And long before completion.

Consider the mortgage. In the commercial lending sense a really good scheme: for the LENDER. The borrower is continually at the mercy of the 'financial markets' that can (and do) at any moment raise the %age rate to be applied.

Amortisation is a small, but not insignificant, part of any 'western-styled' lending. Basically, it is interest added (daily) to the outstanding capital that includes the residual loan outstanding and the interest yet to paid at that date.It generates interest from interest. It is the major reason for taking (in) repayment installments 12 times a year (monthly) and paying (out) interest only once to savers (annually). 12 bites off the same cherry. The yield is different: in is greater than out (assuming the same interest rate has been applied over the same period). Of course (in the real world), the rates are quite different. The interest charged to lenders (paid in) is always much, much higher than the rate paid out to savers.

  • What's the difference between an interest only mortgage and paying rent to a landlord? Neither purchase the property and whenever termination of the mortgage occurs, the capital to buy the house is still needed. Terminating a rental agreement is easier (and less messy) than getting out of any type of mortgage. Maintenance costs reside with the landlord, but with 'ownership' it is the responsibility of the 'owner'. The mortgagee. Not the mortgage provider.