Should Christians use Islamic financial products?

Michael Schluter, December 2005

The Islamic Bank of Britain and some Western banks now offer a range of new, sharia-compliant financial products. The bank invests in non-interest assets (such as equities) where risks are at least theoretically shared between lenders and borrowers. In good times, the bank then pays the savers a dividend instead of interest.

However, to ensure that consumers get a return on their capital, Islamic banks are placing a proportion of profits each month into a reserve fund to be used only when the bank cannot pay a ‘profit dividend’. As long as all goes well, to make the product price competitive, the profit rate is aligned with the interest rates of conventional savings products. So the rate of return on capital is then often the same under Islamic and Western banking rules. While the Islamic approach goes some way towards ironing out what is wrong in the relationship between lender and borrower under conventional banking rules, where all the risk is borne by the borrower, I wish to argue that these new products do not touch the heart of the issue from a Christian perspective.

Biblical ban on interest

I am convinced that the Bible really does ban interest. [1] To argue that Jesus rescinded the OT commands in the parable of the talents ignores the fact that parables are not generally used for this kind of ethical purpose. It also ignores the precise words that Jesus puts in the mouth of the master – if anything, Jesus links the charging of interest to the actions of a ‘hard man’ and reaping where a person has not sown (Matthew 25:26–27) – and the implication of his teaching on lending (Luke 6:34–35).

Christians believe that it is important to apply the intention of the law rather than its letter, important as the letter is (Mark 3:1–6). So why the Bible bans interest is the key question. If you read Engage regularly you will know that the answer must lie within the theme of relationships. We have to ask how an interest-based finance contract affects the way a borrower and lender relate to each other, and also how relationships are affected in wider society.

In a nutshell, an interest-based contract means that the risk is taken almost entirely by the borrower; the lender generally has collateral on the loan and is therefore unlikely to lose out. So the relationship between lender and borrower is an unequal one. At the same time, the lender is able to ignore the needs of the borrower after lending the money because there is no longer a financial benefit or incentive from helping to ensure the borrower makes the most of the borrowed funds. The return is fixed whatever happens.

Interest-based finance may be a key factor in the anonymity of Western societies today. Money is a form of ‘social glue’ keeping people connected when there is otherwise little reason to stay in touch. Once people put their cash into the ‘money market’, where the sole criterion for its use is the rate of return on capital, there is no relational element in the lending decision. Thus, the ‘money glue’ is removed from family and community relationships, and society relies on altruism alone to hold people together. In a fallen world, as we all know, altruism is not a very strong glue.

A Christian perspective on finance

From a Christian perspective, Islamic finance is a glass half-full. It does address the issue of unfair distribution of risk between borrower and lender by ensuring the risk is shared. However, a Christian concerned to obey the Deuteronomic command would also need to focus on the relational outcomes of how their money is used. Existing financial institutions use few relational criteria to determine how their funds are used. And the size of most of these organisations means that ‘relational distance’ between the lender and user of the funds is almost inevitable.

Therefore, I believe, Christians need to devise a new set of financial institutions offering people the opportunity to save and insure themselves as a group – for example in extended families. Christians also need to establish regional investment banks, allowing money to be invested profitably within the local economy. The goal is to build the ‘relational infrastructure’, ensuring that people have every incentive to maintain close relationships with their extended families and in the areas where they live.

The Moslem energy to develop new financial products in obedience to the command not to take or receive interest should be a challenge to Christians to do the same. Why is Moslem commitment to obey the Koran greater than the Christian commitment to listen to, and obey, the Bible? If Christians take action to ‘practise and teach the law’, as Jesus requires (Matthew 5:19), there will soon be further new financial institutions and products in Britain. Let’s pray for that outcome.

Further reading (see our website to download or order): Cambridge Papers by Paul Mills. Chapters 11 (Finance) and 12 (Economy) by Paul Mills in Jubilee Manifesto . ‘Interest in interest: the Old Testament ban on interest and its implications for today’. Paper by Paul Mills (1989). ‘Does the Bible ban interest?’ Article by Michael Schluter (2005).

[1] Deut. 23:19–20, Ps. 15, Ezek. 22:10–18, etc.


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Category: News and Reviews

December, 2005

Comments (1)

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  1. If Christian’s would practice and apply Christian principles in the world of conventional banking…they would see similarities to most Islamic Banking principles. If Christians continue to support conventional, greed & interest driven, conventional banking principles they will find themselves soon in an Islamic banking controlled environment. I am Christian (Catholic) and I support to apply the basic concepts (except the religious provisions) of Islamic Banking, in non Islamic banking.

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