The Nature of Interest (Riba, Usury)
The key feature of interest is that either the borrower or the lender, but inevitably one of the two, faces loss and unfairness, as the interest rate is set at the start of the contract, even though it is impossible to foresee the outcome of the business, profit or loss, or the extent of either.
In adverse market conditions, high interest rates result in losses for borrowers, while in favorable market conditions, low interest rates lead to losses for lenders. This implies that both 1% and 100% interest rates can cause losses to either party. Consequently, it is challenging to predetermine a fair interest rate. Since it is impossible to know the future of the markets, it is not possible to determine a fair interest rate in any way that provides income equity and does not harm either party.
Thus, interest policy can be seen as an inherent injustice for either party involved in a transaction. The rate of interest, whether high or low, and the terminology used: whether interest, riba, or usury, do not matter because different types or rates of interest merely shift the direction of the injustice, affecting either the payer or the receiver.
Regardless of the fundamental aspect of the interest, one can assert that no religion, philosophy, economic, or political theory that values "fair income distribution" can accept or endorse interest policy.
Double-edged cutter saw
The interest mechanism can be likened to a double-edged knife that cuts both ways, placed between lenders and borrowers. At times, borrowers suffer, while at other times, lenders do, but the interest system inevitably hurts one party. In an interest-based business, the borrower's future is uncertain, whereas the capital owner's fortune is secure from the outset. On the other hand, a fixed interest rate puts a limit on the profits of capital that could yield higher income.
Peculiar-ruled football game
The interest mechanism can also be compared to a football game with peculiar, skewed, and biased rules. Imagine that Team A starts the game with a virtual three-goal advantage. However, Team A cannot score any additional goals; their sole objective is to defend passively their goal. Meanwhile, even if Team B scores two legitimate goals, they still lose. To win, they need to score at least four goals.
Team A in this analogy represents capital, while Team B symbolizes labor-entrepreneurs. The question arises: Can we ever achieve a fair match score in such a football game? And is there any difference between this unusual game and the interest policy?
The interest policy is a mechanism where the capital owner who lends can earn as much as the interest rate without any risk. However, they cannot earn more than the initially fixed interest rate, even when the capital is highly productive during the contract. On the other hand, entrepreneurs face a loss unless they earn more than the interest rate.
As observed, the interest policy has a nature that prevents the fair distribution of income among individuals and the factors of production. This is its inescapable characteristic. This is because the interest rate is set only for capital from the outset. Although this seems to be in its favor, it can also turn in situations where the productivity of capital turns out to be higher than expected.
