This document discusses the high interest rates paid by poor consumers in the US. It summarizes that: 1) Poor consumers often lack bank accounts and access to mainstream credit, so they rely on fringe lenders like pawn shops, rent-to-own stores, and payday lenders. 2) These fringe lenders charge extremely high interest rates, from 100-300% annually for things like pawn shop loans and title loans, and up to 3000% for payday loans. 3) Despite biblical prohibitions on usury (lending with interest), modern attitudes accept interest as normal, yet ironically the poor still pay the highest rates.

1. Conflicts of Interest?
The Ethics of Usury Martin Lewison
ABSTRACT. Social attitudes toward usury (here 18:13; Psalms 15:5; Proverbs 28:8), the poorest
defined using the archaic meaning as the taking of consumers in the American economy pay the
interest on loans) have changed dramatically over the very highest rates of interest (Caskey, 1996). This
centuries. From antiquity until the Protestant paradox deepens when one considers the fact that
Reformation, usury was regarded as an inherently evil the biblical condemnation encompasses interest
activity. Today, with few exceptions, usury is met with
on all loans, not only those to the poor. How is
moral indifference. Modern objections to usury are
limited to protest against “excessive” interest rates
it that the biblical prohibition is today not only
rather than interest per se. With this change in focus, violated, but is also violated so utterly?
the very meaning of the term “usury” has also Clearly, attitudes toward the charging of
changed. Many early pronouncements against the interest have changed drastically since ancient
taking of interest emphasized the plight of the poor, times. What was once considered an inherently
but ironically, the poor actually pay the highest rates evil activity is now widely accepted as a matter
of interest in the modern American economy. Despite of everyday economic humdrum. Charging and
the universality of usury, some socio-economic sub- paying interest on loans is taken for granted as a
cultures still manage to avoid the taking or giving of matter of course. There are, however, pockets of
interest. Orthodox branches of both Judaism and society that have continued, since biblical times,
Islam have maintained bans on usury throughout the to maintain and act in accordance with the
centuries and up to the present time. This is espe-
biblical restriction on the taking of interest on
cially interesting in the case of Judaism, given the
popular cultural image of the Jew as usurer. Jewish
loans. Furthermore, successful economic activity
free loan systems may actually offer a model for in these communities seems to go on unabated
modern loan programs that can be designed to aid despite this proscription. Why have not the
poor borrowers, who are frequently shut out of main- nation’s poor been afforded this avenue of bibli-
stream financial services. cally mandated financing? Given the shameful
reality that the “poor pay more”, perhaps scholars
Key words: Christian business ethics, free loans, of business ethics need to look into the practical
Islamic business ethics, Jewish business ethics, possibility of applying the usury-free model in
microlending, microloans, pawnbroking, usury such a way as to assist the financially disenfran-
chised who suffer from abnormally high interest
rates.
It is ironic that, in spite of express biblical con- This paper first examines the plight of the
demnation for the practice of charging interest American poor with regard to the banking and
on loans to the poor1 (Exodus 22:24; Leviticus credit industry. We find that “fringe banking”
25:35–37; Deuteronomy 23:20–21; Ezekiel institutions charge the highest rates of interest
and are often the only source of credit for the
Martin Lewison is a Ph.D. candidate at the Katz School poor. The second section of the paper takes an
of Business, University of Pittsburgh. His dissertation historical view by investigating the change of
is a study of the relationship between organizational attitudes toward usury from biblical times to
visual symbols and stakeholder social identity. the present. The third section then examines
Journal of Business Ethics 22: 327–339, 1999.
© 1999 Kluwer Academic Publishers. Printed in the Netherlands.

2. 328 Martin Lewison
economic subsystems that abjure usury and rely Low-income consumers, with or without bank
strictly upon “free loans” for economic capital. accounts, are far more likely to have uncertain
The third section will pay particular attention income streams and unstable employment
to the Jewish and Islamic free loan systems. patterns than higher income consumers, and this
Finally, the possibility of transference between makes them unattractive to mainstream lenders.
free loan systems and aid for the financially dis- Poverty “. . . increases their need for credit but
enfranchised is discussed. Because free loan also makes it less likely that they will honor debt
systems can work even in the 1990’s, it is argued payment commitments reliably” (Caskey, 1991,
that there may be an ethical obligation to apply p. 87). Lack of a bank account virtually ensures
free loan systems to the borrowing difficulties of that a traditional credit application will be
the poor. rejected, and this leads to patronage of the types
of institution mentioned above. According to
Tebbutt (1983, p. 203), who studied the pawn
Modern usury and the financially shop industry in Britain, “(F)ree choice is a myth
disenfranchised to such borrowers . . . . (T)he poorest find their
frequently blacklisted reputation going before
It is estimated that as many as 60 to 70 million them to block any access to cheaper forms of
adults in the U.S. do not have any type of bank credit, while the burden of paying installments
account (Rowe, Jr., 1993). Members of this group takes up a far greater proportion of their income
are likely to be poor and must pay for all of their than is the case with wealthier borrowers.”
financial transactions, from telephone bills to car Pawnshops, rent-to-own stores, car-title
payments, in cash. In addition, people without lenders, and payday lenders may well be appro-
bank accounts are typically denied access to priately labeled the “usurers of the modern age”.
simple consumer credit services that others with These institutions charge rates of interest that are
bank accounts often take for granted. Lack of a many time greater than typical market rates, and
bank account generally precludes one from being their clientele come mainly from the ranks of the
granted access to simple bank loans, credit cards, poor and underemployed. Critics of the rent-to-
and other forms of consumer financial services. own industry, for example, additionally cite it for
Maintenance of a bank account is no guar- engaging in misleading marketing and advertising
antee of financial enfranchisement, however. practices (Hudson, 1996). Several lawsuits against
Consumers with low incomes or poor credit his- unfair rent-to-own industry practices have suc-
tories are also frequently denied access to many cessfully been brought to trial on both the state
mainstream consumer credit sources and often and federal level (“For sale: Thorn’s U.S. stores
find themselves in the same borrowing class as . . .”, 1998; “Judgement against Rent-A-Center”,
those consumers who lack even a basic checking 1997; “Victims calls it . . .”, 1996).
account. These consumers are forced as a whole Pawnbrokers, rent-to-own stores, and other
to rely upon what is sometimes referred to as fringe banking institutions routinely charge their
the “fringe banking” system (Caskey, 1996; customers annualized interest rates between 100
“Poverty, Inc.”, 1998, p. 29). The term “fringe and 200 percent (Branch, 1998; Hudson, 1993a,
banking” applies to institutions that lie outside 1996; Fogarty, 1994; “Poverty, Inc.”, 1998).
of the traditional mainstream of the consumer “Car-title loans”, loans made with a customer’s
financing business. Patrons of fringe banking vehicle title as collateral (these are “auto pawn
services do their banking through institutions shops”, essentially), charge rates as high as 300
such as check cashing establishments (Rowe, Jr., percent a year (“Poverty, Inc.”, 1998). Check-
1993), subprime mortgage lenders (“Poverty, cashing establishments, which give “payday
Inc.”, 1998), lay-away plans, rent-to-own stores, loans” to help tide customers over until payday,
“title lenders”, “payday lenders” (Murray, 1998), may be the most egregious offenders: payday
and even pawnbrokers, numbers rackets, and loans can cost up to 3000 percent in interest
lotteries (Noponen, 1992; Light, 1977). (Hudson, 1997; Murray, 1998).

3. Conflicts of Interest? The Ethics of Usury 329
In defense of the fringe banking industry, it is the customer may pay between 350 and 450
often argued that since loaning to the poor percent more for the item than s/he would if a
involves greater risks, those who do so are single purchase payment been made at a retail
entitled to compensate themselves by charging store (Hudson, 1993). Yet the need to spread
more for their services than would be asked of payments out over the long-time makes rent-to-
average lower-risk borrowers. Some defenders of own seem like a worthwhile deal to the poor
fringe banking will use credit cards as a means (Tebbutt, 1983, p. 204). After a period of time,
of comparison. Credit card loans are riskier than the renter becomes psychologically trapped into
some other types of loans, and this is offered as the agreement due to the high sunk costs, and
an explanation for why credit cards charge higher with good reason: the renter does not build
rates than other sources of consumer credit equity in the asset over time. Failure to continue
(“GAO takes a look . . .”, 1994). One analyst payments simply leads to repossession without
remarked while plugging the stock of EZCorp, any reimbursement (Hudson, 1997).
a publicly held chain of pawn shops, that Pawn shops appeal to the poor because pawn-
“(I)nterest rates are high enough to earn Biblical brokers do not submit their customers to credit
condemnation, but the hit on credit cards is checks. Each loan recipient must instead leave a
almost as bad, and the closest EZCorp’s clien- pledge for the loan. Pawnshops appeal even to
tele gets to plastic is in bagging fresh vegetables” the not so poor as well because they can dis-
(Zipser, 1993, p. 40). creetly provide cash (Syedain, 1991; Brown,
The analogy to credit cards does not neces- 1991). Moreover, because it is so unprofitable,
sarily hold up to scrutiny, however. Credit card most banks will generally not lend amounts
rates are much lower than pawn shop rates, below $1000, regardless of credit history
running closer to 20–30 percent interest on an (Schwartz, 1989). Considering the broader
annual basis, or close to one hundred percent less spectrum of financial services, however, it is easy
than pawnshop rates on average (Caskey, 1991). to see that indigents have far fewer financing
More importantly, pawnshop loans are secure choices than the well to do. Despite the industry’s
loans; on must pledge collateral in order to secure shift to a well-scrubbed image and modern mar-
a loan, thereby drastically reducing the risk taken keting techniques (Branch, 1998; Auster, 1997),
on by the lender. Rent-to-own stores and payday the image of the pawn shop still clearly belongs
lenders charge still higher rates of implicit interest to the lower class world (Hudson, 1997; Brown,
while taking on even less risk than pawnbrokers 1991; Syedain, 1991; Schwartz, 1998). We must
do. now ask: is not government interested in these
The rent-to-own industry seems to specialize seeming abuses of the financially disenfranchised
in skirting what few legal limits government poor?
places upon it. Nonetheless, it remains one the Many states set usury ceilings on pawnshop
few avenues of financing available to the poor. operations. Pennsylvania sets a limit of two
A customer pays a weekly fee, usually less than percent per month, while Georgia sets a limit of
twenty dollars, for an appliance such as a televi- twenty-five percent per month (Brown, 1991).
sion set or a microwave, or even for furniture or There is irony in usury ceilings, however, in that
major appliances like stoves or refrigerators. If the this government protection of the borrower leads
payments continue for a specified period, typi- to a credit crunch. Caskey (1991) argues that
cally 18 months, the customer can keep the item. such ceilings serve mainly to limit the number of
The store provides for all maintenance costs, but pawnshops. If rates are kept artificially low, then
commonly, customers are liable for insurance only those pawn shops with the highest volume
premiums, delivery charges, late fees, and other of business will be able to survive. Pawnshops in
charges (Woolley, 1993, p. 78). These added costs rural areas or in smaller cities will fail due to
are rarely itemized in rent-to-own contracts, a these limits on rates because their volumes are
fact there has worked against the industry in not high enough. The end result is that the avail-
recent court cases (Lambert, 1995). In the end, ability of easy, expensive credit decreases, and

4. 330 Martin Lewison
poor borrowers are forced to look for alterna- State limits on retail interest rates do not apply
tives, some of which may involve illegal terms to rent-to-own stores because “(R)ent-to-own
of financing. This helps to explain why most customers can bring their merchandise back any
northeastern states, which generally have stricter time with no obligation for the rest of the
usury ceilings on the pawn industry, only have payments” (Hudson, 1993a, p. 44). When a
pawnshops in the largest cities. Pawn shops in customer contracts with a rent-to-own store, no
southern states, which tend to have more debt is technically created, so regulations that
generous usury ceilings, are in much greater limit allowable interest charges on retail debt are
abundance in both small and large cities (Caskey, never activated. Unfortunately, neither does the
1991, pp. 94–95). Villegas (1989) supports this customer build up any equity in the asset. Rent-
view with empirical evidence that usury ceilings to-own contracts also slip through the cracks of
reduce the quantity of credit obtained by high- leasing regulation. Since rent-to-own contracts
risk borrowers in states with lowered ceilings. are written for only a week or a month at a time,
Boyes (1982) adds some interesting insight to they are not covered by the Consumer Leasing
the discussion. In another empirical study, Boyes Act, which only covers leases that exceed four
finds that more politically liberal U.S. states tend months (Woolley, 1993). In addition, the rent-
to have higher (ineffective) usury ceilings, while to-own industry has been extremely effective at
more conservative U.S. states tend to have lower fighting new legislation, and virtually every state-
(effective) usury ceilings. Boyes does not look at level legislative attempt at tightening these loop-
legal rates for pawnshops, but instead at mortgage holes has failed (Woolley, 1993; Hudson, 1993a).
and consumer loans. He points out that effec- The U.S. Congress has recently considered
tive ceilings tend to push high-risk lenders to federal legislation2 on the matter.
loan sharks or out of the lending market alto-
gether. Lenders are limited in how much they
can charge for a loan, so they will only loan to Historical attitudes towards usury
the best risks. This hurts the high-risk segment
of the borrower’s market. Low-risk borrowers During much of human history, the notion of
actually benefit from effective usury ceilings taking interest on a loan made to one’s fellow was
because they are never pushed out of the market considered inherently evil and immoral. There
for reasons of risk. Boyes hypothesizes that liberal is evidence of ill feeling toward usury from the
legislatures recognize that high-risk borrowers are earliest civilizations (Homer and Sylla, 1991), and
pushed out of the market by low usury ceilings one finds the prohibition of usury featured quite
and so keep these ceilings high and ineffective. prominently in the Hebrew Bible. This is not a
This is not necessarily incompatible with prohibition on excessive interest rates, as in the
Caskey’s evidence that pawnshop usury rates have modern sense of the term “usury”, but of any
lower ceilings in “liberal” states. These north- and all interest, regardless of rate. From the
eastern state legislatures must recognize that the Torah3 (the Pentateuch), we find in Exodus 22:24
poor and high risk segment of the population that it says: “If you lend money to My people,
uses pawn shops, and therefore acts to protect this to the poor among you, do not act toward them
group of borrows from usurious rates while as a creditor; exact no interest from them.” Later,
unwittingly squeezing the lender’s market. More in Leviticus 25:35–37, it says: “If your kinsman,
conservative states do not concern themselves being in straits, comes under your authority, and
with the borrowing opportunities of the poor you hold him as though a resident alien, let him
and therefore allow pawnshops to keep their rates live by your side: do not exact from him advance
very high. Glaeser and Scheinkman (1998) seem or accrued interest, but fear your God. Let him
to agree with this view of usury restrictions as a live by your side as your kinsman. Do not lend
means of protecting the poor. Their empirical him money at advance interest, or give him
study found a significant relationship between in- your food at accrued interest.” Finally, at
come inequality and restrictions on interest rates. Deuteronomy 23:20–21, there are the verses

5. Conflicts of Interest? The Ethics of Usury 331
“(Y)ou shall not deduct interest from loans to law, maintained its antipathy of usury (and of
your countrymen, whether in food or anything commerce in general, much like the ancient
else that can be deducted as interest; but you may Greeks) through the injunction in Luke (6:35) to
deduct interest from loans to foreigners. Do no “lend freely, hoping nothing in return” (Glaeser
deduct interest from loans to your countrymen, and Scheinkman, 1998). The first formal action
so that the LORD your God may bless you in taken against usury by the Catholic Church came
all your undertakings in the land that you are in 325 C.E., when the first general council of
about to enter and possess.” In the Prophets, we the Church, the Council of Nicea, passed a
find the following exhortation from Ezekiel canon prohibiting the taking of interest by
(18:13): “(If a man) has lent at advance interest, clerics, citing Psalm 15 (Homer and Sylla, 1991,
or exacted accrued interest – shall he live? He p. 70). For the next five hundred years, the
shall not live! If he has committed any of these Church intermittently attacked usury. Between
abominations, he shall die; he has forfeited his the ninth and thirteenth centuries, the Church
life.” From the Writings, we have the following imposed a new string of harsh restrictions on
verse in the Psalms 15:5, where it says that usurers, ranging from the excommunication of
someone “. . . who has never lent money at lay usurers in 850, to the equating of usury to
interest, or accepted a bribe against the innocent robbery in the eleventh century, to the prohibi-
. . . . The man who acts thus shall never be tion of all usury in 1139 by the Second Lateran
shaken.” Proverbs 28:8 offers the following: “He Council (Homer and Sylla, 1991, p. 70).
who increases his wealth by loans at discount or Yet during the same period, wherever there
interest amasses it for one who is generous to the was trade, the charging of interest on borrowed
poor.” Finally, Nehemia 5:7 says: “After pon- funds continued. One justification for this ques-
dering the matter carefully, I censured the nobles tionable behavior was the peculiar ambiguity of
and the prefects, saying, ‘Are you pressing claims Deuteronomy 23:20–21 (Nelson, 1969). On the
on loans made to your brothers?’ Then I raised one hand, the verse prohibits the taking of
a large crowd against them . . . .” interest from one’s brother. On the other hand,
These verses formed the basis of the Judeo- it permits the taking of interest from a “for-
Christian prohibition against usury. Despite the eigner”. If usury was truly evil, why was it not
injunctions and exhortations, however, histor- universally condemned? This ambiguity led to
ical evidence shows that the prohibition of various attempts by lenders to skirt usury prohi-
interest was not universally observed, even during bitions. For example, the scholastics believed that
biblical times (Cohn, 1971). Moral condemna- extra charges for late payment were seen as jus-
tion of usury and usurers continued throughout tifiable payments above the actual loan amount,
history, however. The taking of interest was seen while charges to cover a lender’s opportunity
as intolerable to the Greek philosophers, having costs were viewed as unjustifiable (de Roover,
no place in their ideal city-states (Glaeser and 1967, pp. 261–262). Distinctions were made
Scheinkman, 1998; Divine, 1967). Aristotle held between loans for consumption and loans for
that money’s purpose was solely as a medium of production, with usury restrictions being placed
exchange; money was a sterile thing, incapable only on the former (Glaeser and Scheinkman,
of bearing “fruit”. The taking of interest wrongly 1998). Another notable way to avoid interest pro-
involved gain from money itself, instead of from hibitions was through foreign money changing
the activities of exchange which money was activities that took advantage of varying rates of
meant to facilitate (Glaeser and Scheinkman, exchange (de Roover, 1967, pp. 264–270).
1998; Gordon, 1982). The universal prohibition on usury imposed
The rest of the history of usury illustrates the by the Catholic Church in 1139 contributed to
tension between moral pronouncements against the conditions that led to widespread Jewish
the taking of interest and the economic realities involvement in money lending in medieval
of commerce and credit. Early Christianity, Europe. Severe economic restrictions (e.g.,
while dispensing with the minutiae of Hebrew exclusion from craft guilds) prevented Jewish

6. 332 Martin Lewison
pursuit of other trades, and the Jews remained ideal of universal brotherhood could be realized
outside the Church edict (Cohn, 1971). The (Shatzmiller, 1990, p. 45).
verses in Deuteronomy (23:20–21) permitted Numerous cases of violence toward medieval
money lending at interest to Gentiles under Jewish moneylenders were recorded (Nelson,
Jewish law. In fact, the famous rabbi Moses 1969; Shatzmiller, 1990, pp. 46–51). The moti-
Maimonides [1135–1204] and other Jewish legal- vation for at least one act of anti-Jewish violence
ists interpret the Deuteronomic verses as a was revealed when immediately following the
positive commandment to take interest on loans massacre of the Jews at York, England in 1190,
to Gentiles (Maimonides, 1949, p. 77; haLévi, the conspirators went directly to the place where
1992, pp. 285–287). Talmudic sources qualify the the records of debt were kept and destroyed them
permissibility of taking interest from Gentiles by (Shatzmiller, 1990).
limiting it to the level required for subsistence if Jewish prominence in money lending waned
there are no other means of survival (Bava Metzia when many Jewish communities were taxed out
70b). Shatzmiller (1990, pp. 44) argues that for of business by various civil authorities. When
the Christians, borrowing money from the Jews Jewish usefulness was thus concluded, many
was a way “. . . to bridge the gap between the Jewish communities were expelled from their
ethics preached by the church and the economic adopted homes (Shatzmiller, 1990, pp. 62–65).
reality displayed daily in the marketplace.” Jews Jewish money lending activities continued,
were, of course, not the only moneylenders however, with the ascendancy of the Court Jew,
during this period, but evidence suggests that whose fortunes rose and fell with those of the
Church constraints on usury had a decided royal administration he served (Stein, 1971).
dampening effect on Christian money lending Jewish banking continued into the 19th and 20th
(Galassi, 1992). centuries with the rise of the Rothschilds and
In spite of the commercial usefulness of Jewish other merchant banking families of both Europe
money lending, feelings against usury in general, and the United States (Biringham, 1967;
and against Jewish usurers in particular, was Kellenbenz, 1971). Yet the image of the Jewish
intense. Usury sat near the height of all social usurer lived on. “With the stage performance of
evils, and this attitude was reflected even in the the ‘Merchant of Venice’ in 1605, Shakespeare
Church architecture of the period. Capitals established for centuries to come the image of
depicting usurers being attacked by demons are the Jewish moneylender as an execrable, pitiless
common in the late eleventh and early twelfth usurer” (Shatzmiller, 1990, p. 1).
century churches of the central French province The German Reformation initially caused
of Auvergne (Baumann, 1990). Thomas Aquinas only a subtle change in the general attitude
(1225–1274) seemed to counteract the general toward usury, but this influence later grew to
spirit of the times when he ruled that the Jews revolutionary proportions. Martin Luther (1483–
were permitted by the Deuteronomic verses to 1536), who helped start the drift of opinion on
lend at interest to foreigners. He did so, however, usury, wavered on the issue of usury for much
only because he believed that the Jews would of his life. While he was critical of usury, Luther
otherwise follow their inherently avaricious urges was often willing to excuse it as a product of
and charge interest to one another (Nelson, human moral frailty. He was more critical of
1969, p. 14). Church leaders (and debtors them- those who sought to erase debt altogether and
selves) generally would pressure civil authorities even out the social classes. Luther was also willing
to impose sanctions against Jewish money to accept civil authority over that of Mosaic or
lending. Many felt that the Deuteronomic pro- Gospel law (especially during debtor revolts),
hibition upon usury between Jews provided even if it meant that usurious activity would
evidence that usury was a universal sin. It was continue. Luther rejected this aspect of the
further believed that Jews should be forced to concept of universal Christian brotherhood.
include Gentiles as “brothers” within the context “The Christian man, Luther cried, was free,
of the Deuteronomic verses so that the Christian under no obligation to observe dead Mosaic

7. Conflicts of Interest? The Ethics of Usury 333
ordinances. As for the Gospels, they were not usury. The Church ruled that “. . . the faithful
intended to take the place of the civil law or to who lend money at moderate rates of interest are
supplant existing authorities” (Nelson, 1969, pp. ‘not to be disturbed,’ provided they are willing
29–30). to abide by any future decisions of the Holy See”
Luther had loosened the bonds, according to (Divine, 1967, p. 499).
Nelson, but the final steps toward the accept- While the taking of interest is more or less
ability of usury were not taken until John Calvin’s universally legal in the industrialized west,
(1509–1564) arrival onto the scene. It was Calvin restrictions on interest rates remain to this day.
who enabled the modern attitude toward interest. Many U.S. states restrict permissible interest rates
Calvin broke with the Greek philosophers and on consumer retail loans to something close to
with earlier Church teachings by proclaiming twenty percent. More than one American state
that, in fact, money was not sterile and unable has had usury limits incorporated into its con-
to yield its own fruits (Homer and Sylla, 1991, stitution. Arkansas’ constitution of 1874 limited
p. 80), at least not in the case of loans for pro- permissible interest rates in that state to only ten
duction purposes (Divine, 1967, p. 499). Calvin percent. Many of the state’s financing companies
held that Scripture only prohibited “biting” were simply forced to leave the state when efforts
usury (Homer and Sylla, 1991, p. 80), based on at passing a constitutional amendment to the
the Hebrew word for interest used in Exodus usury provision failed (Martin et al., 1990, p. 6).
22:24, neshekh, meaning, literally, “to bite”. By 1990, Arkansas still had not effectively
Calvin wrote: “No scriptural testimony exists changed its usury law. By comparison, nearby
which would totally condemn usury. For that Tennessee, which also had constitutionally
sentence of Christ which the populace regards mandated usury limits, changed its law in 1979.
as most unequivocal, namely, ‘lend, hoping for Using national loan market data from January
nothing again’ (Luke 6:35), has been gravely dis- 1983 to August 1989, Liu et al. (1990) estimated
torted” (quoted in Baron, 1971). “Should not that 60% of short-term, fixed rate small loans
usury be prohibited for the same reason it (between $1000 and $24000) made in the U.S.
was forbidden amongst the Jews, because all during that period were negotiated at rates above
Christians are brothers?” Calvin was asked. His the legal maximum in Arkansas.
reply was that the Christian fraternal union was In spite of the Arkansas case, if one looks at
completely different from that of the Jews the United States as a whole, it can no longer
(Nelson, 1969, p. 78). Ethnic and tribal ties that be argued that usury is much of an ethical issue
would never apply to the Christian world linked in the modern American marketplace. While
the Jews. God’s rules for the Jews made sense federal and state limitations on interest rates do
only within such a tribal context. Thus, Nelson exist in the U.S., banks and other financial insti-
argues, Calvin paved the way from a “tribal tutions have on the whole been left alone to
brotherhood,” where usury was forbidden, to a charge what markets will bear. The anti-usury
“universal otherhood,” where it was more or less attitude dating from antiquity has been sup-
entirely permitted. Eventually, as the market planted by modern moral ambivalence. If moral
economy in Europe grew more sophisticated objections are raised at all, they are to the taking
after the Renaissance, arguments within of excessive amounts of interest rather than the
Protestant nations changed from whether usury taking of interest per se. This is, in fact, the
was permitted, to how much was a reasonable rate. meaning conveyed through modern use of the
It became common for secular powers to regulate term “usury”, excessive interest rates. Of course,
rates of interest. These changes in attitude were in the U.S. it is precisely the people in the most
buttressed by then-new classical economic argu- precarious economic positions that are paying the
ments regarding issues such as risk and the time most “usurious” rates, which is ironic since the
value of money from the likes of John Locke. biblical injunction is explicit in its condemnation
Not until the 19th century, however, did the of any interest charges to the poor.
Catholic Church finally soften its position on On the other hand, there still are segments of

8. 334 Martin Lewison
the modern economy that continue to shun O ye who believe! Observe your duty to Allah and
usury on the basis of these very same ancient give up what remaineth (due to you) from usury,
biblical exhortations against it. For these com- if you are (in truth) believers. And if ye do not,
munities, the biblical commandments to “lend then be warned of war (against you) from Allah
freely” to the poor remains alive today. and His messenger. And if ye repent, then ye have
your principal (without interest). Wrong not, and
ye shall not be wronged. And if the debtor is in
straitened circumstances, then (let there be) post-
Free loans in the modern economy ponement to (the time of ) ease; and that ye remit
the debt as almsgiving would be better for you if
One rarely hears of a free loan in today’s modern ye did not know (Quoted in Qureshi, 1946, pp.
marketplace. A free loan is often considered to 45–46).
be like a free lunch, that is, suspicious. Free loans
are virtually unheard of, and it is nearly impos- The basis for the Islamic prohibition against
sible to escape either the taking or giving of riba in commercial loans is the central belief
interest in modern financial dealings. Even a loan that one should not gain profits where one has
that seems on the surface to be free may not be also not taken on risk (Taylor and Evans, 1987,
so at all. Take, for example, the case of usufruc- p. 21). Yet despite this prohibition, economic
tary land mortgage. This is a form of financing activity can flourish even in accordance with
used in agrarian societies where a loan is Quranic prohibitions against usury. In Turkey, for
made with a piece land serving as a possessory example, financing houses that operate under
pledge (the pledge, in this case a piece of land, Quranic guidelines have captured up to 3% of
is left with the lender). After the specified period the nation’s deposits (Pope, 1997). Citibank and
of the loan, the debtor pays back the exact other banks transacted more than US$10 billion
amount loaned. Although it seems to be a free in Islamic financing in 1993, and London has
loan, in fact, the mortgagee is free to use the land grown into an important Islamic finance center
for his/her own cultivation, resulting in an (Halls, 1994).
implicit payment of interest (Shibili, 1993). In Islam, the most popular form of commer-
While no explicit interest payment occurs, cial financing is the murabaha (Syedain, 1989).
Jewish biblical exegeses rule that this type of This is a cost-plus resale transaction. One party,
arrangement violates the Biblical prohibition of the “financier”, purchases goods from a second
interest. party, and then resells the goods to a third party
Judaism and Islam both contain strong moral at a higher price. Three parties must be involved,
and legal interdictions against the taking of and the goods must actually change hands. The
interest. Not surprisingly, the Hebrew and Arabic second party earns a legitimate profit as a broker,
words for “interest” are similar, the Hebrew while the third party is able to pay on deferred
being ribith and the Arabic word being riba. Yet terms. The controversy comes from the fact that
even with their prohibitions against interest, both such trades are made today via split second telex
Islam and Judaism recognize that there are still operations, so the band (middleman) never really
instances where one is justified in profiting from takes a risky position, and the third party never
another’s use of one’s funds. In order to ensure really has an opportunity to refuse the goods.
that economic activity and growth can continue, Nonetheless, this is a popular short-term trade
each has developed different contractual forms of financing mechanism that adheres to the Islamic
advancing funds for profitable investment that prohibition against interest. Mechanisms like
do not violate the prohibition of interest. murabaha (e.g. musharaka, ijara, and isitna) have
Nonetheless, both systems maintain a strict been institutionalized throughout the banking
attitude against interest-bearing loans to the poor. system of the Islamic world (Halls, 1994; “Islam’s
The Quran (2:278–280) concurs with the biblical interest”, 1992; “Spot the difference”, 1989;
passages when it states: Syedain, 1989; Taylor and Evans, 1987). There
are, of course, some Islamic economies that are

9. Conflicts of Interest? The Ethics of Usury 335
finding it difficult to reconcile the teachings of ment to loan is considered so great, the Chafetz
Islam with the economic engine that riba can Chaim (1976, pp. 43–44) ruled that one must
provide (Pal, 1994). As mentioned above, these extend kindness and loan even to one’s worst
financing mechanisms are for use with commer- enemy. Bearing a grudge against one’s enemy and
cial loans. For consumption purposes, interest- not loaning would involve not only the failure to
free loans are certainly permitted, but gifts of fulfill the positive precept to loan, but would also
charity are actually preferred (Ahmad, 1986, p. involve the transgression of the negative Biblical
478). precept against taking revenge: “You shall not
Judaism’s preference is the other way around. take vengeance or bear a grudge against your
“Lending money to the poor man is a more mer- countrymen. Love your fellow as yourself: I am
itorious deed than giving charity to him who the LORD” (Leviticus, 19:18).
begs for it, for the one has already been driven Free loan societies are an important institu-
to begging, while the other has not yet reached tion in the Jewish world (Bindman, 1993;
that stage” (Maimonides, 1949, p. 78). As the Tenenbaum, 1993; Tamari, 1987, p. 171). Yad
Chafetz Chaim4 (1976, p. 33) points out, there is Sarah (Hand of Sarah) is an organization in
no shame involved in accepting a loan, while Jerusalem that lends medical equipment of
there is great shame involved in accepting charity. families that cannot afford to make the expensive
Making free loans is actually a required obliga- purchases involved. Other Jewish free loan asso-
tion in Judaism, and the scholars of Jewish ciations exist to lend everything from plates and
thought extolled the merit of fulfilling this com- silverware for large functions, power tools, apart-
mandment of lending to a poor person as being ments, books and audio cassettes, and even baby
far beyond that associated with the act of charity pacifiers at all times, day or night (Bindman,
(Shilo, 1971, p. 415). Maimonides, in fact, con- 1993). Nearly every city with a large Jewish
sidered the granting of a free loan to be the very population in North America has a free loan
highest form of charity (Levine 1987, p. 115; society, and these operate within strict biblical
Tamari, 1987, p. 170). The fulfillment of this guidelines, charging no interest for their loans.
commandment is considered to be an act of The Hebrew word for a Jewish free loan orga-
ahavath chesed, of “loving kindness” (Chafetz nization is gemach, which comes from the two
Chaim, 1976; Tamari, 1987, p. 170). Further- words gemiluth chesed, meaning “the giving of
more, it is not only money that the command- kindness.” Tenenbaum (1993) wrote about Jewish
ment refers to, but to virtually any item. One free loan societies in America, noting their
should lend tools, food, or anything that his or importance in fostering Jewish entrepreneurship
her neighbor needs. Payment for loans is, of in the U.S.
course, forbidden.
There is a vast set of rules pertaining to free
loans in Judaism, and these rules cover issues as Application of biblical business ethics to
diverse as which potential borrowers are given the problems of the poor
priority, what the proper amount to lend is, and
whether one can interrupt Torah study to give a Vogel (1991) points out that many of the
loan. There are many rules that deal solely with problems that business ethicists deal with are not
issues regarding the security pledges for loans new, and the problem of modern usury seems
(Rabinovich, 1993). It should also be pointed out to fit into this category. Perhaps it is time for a
here that in Jewish law there is also a rule to repay new dialogue between religious values and
a loan. This obligation is nearly as important as economic thinking, or at least time for a reassess-
the one to grant the loan itself (Tamari, 1990). ment of religious views on commerce that have
There are rules regarding witnesses, guarantors, been ignored or suppressed (See Van Buren III
interest, and even rules concerning what a and Agle, 1997; Rossouw, 1994; Lamb, 1992;
borrower is permitted to do with borrowed Magill, 1992; Vogel, 1991). It may be that ethi-
funds. The importance of the Jewish command- cists will find that many religious doctrines and

10. 336 Martin Lewison
teachings have absolutely no bearing whatsoever from usury for the poor. Noponen (1992) and
on many modern business ethics problems. Many Ekins (1992, p. 83) provide evidence for the
of these religious teachings were developed and success of such community-based credit schemes
implemented in times so far removed from our in the form of microlending agencies in India.
own that application to modern cases may simply The idea of microlending has begun to catch on
not make any sense. and is expanding throughout the U.S. (Coulton,
On the other hand, it is just as likely that there 1997; Hodges, 1997; Werner, 1996). The Center
is much that religious teachings can offer to for Economic and Social Justice (Washington,
modern business ethics. Religious values have D.C.) works to reorganize the distribution of
not stagnated and petrified since ancient times. credit and capital rights so as to give such rights
Religious values and teachings are living phe- to the poor. Jones and Wattenberg (1991) suggest
nomena and have changed and grown to encom- that free loans are at least a partial answer to a
pass and accommodate the lives and problems of host of problems of poverty, offering evidence
those that live with and are guided by those in the form of a free loan experiment conducted
values and teachings. At the very least, there is with a group of poor female borrowers. Several
probably a great deal of insight to be gained studies indirectly suggest that the social and insti-
through a religious dialogue with modern tutional elements that make Jewish free loan
business. It is certain that many interesting and systems successful are also operating in other
potentially useful analyses of ethical problems in successful community-based credit programs
modern business have been generated when (Tenenbaum, 1993; See also Mitnick and
religious points of view have been applied to Lewison, 1996). Of course, more research is
ethical problems in modern business (See, for required to discover what particular lending
example, Pava, 1998; Long, 1996). For the mechanisms are the most successful in helping
purpose of this paper, the application of free the poor become self-sufficient.
loans, as modeled by Jewish and Islamic com- If it is important for society to alleviate the
munities, to the problems of ghetto usury may suffering of the poor and permit them to achieve
be the perfect example of a potentially useful economic self-sufficiency, then it is important
application of a religious ethic to an ethical to investigate inexpensive lending services as
problem in business. a possible policy tool. Judaism, Islam, and
In a response to Meir Tamari (1986), Walter the programs mentioned above provide some
Block (1986) characterizes the idea of an interest- working models. If the state is unwilling or
free loan as preposterous. The poor can only unable to embark on such a policy initiative, then
compete for credit by paying a higher rate, he perhaps the impetus (and initial capital infusion)
argues. Interfering with interest rates and driving can come from the business world (See Kossek
them to zero would wreck the economy. But et al., 1997).
Block may be missing the point. Returns on
funds used for investment or in an economy-
wide banking system should not be considered Acknowledgement
on the same level, or in the same way, as returns
on loans to the poor, from a moral standpoint. The author would like to thank David Berg and
Furthermore, Block ignores existing free loan the David Berg Fund for the Study of Jewish
systems that operate successfully for special classes Business Ethics at the Katz School for their
of borrowers within the robust economies of the generous support of this research. The author also
late twentieth century. Block also ignores view- acknowledges the invaluable assistance of Prof.
points that hold that productive credit is a public Barry Mitnick.
good that must be shared with all segments of
society (Miller, 1994).
Tebbutt (1983, p. 203) suggests that commu-
nity-based credit bodies provide a possible escape

11. Conflicts of Interest? The Ethics of Usury 337
Notes Brown, C.: 1991, ‘Pawnbrokers to the Stars’, Forbes
148 ( July 8), 104–105.
1
Similar prohibitions against charging interest to the Caskey, J. P.: 1996, Fringe Banking: Check-Cashing
poor are found in the ancient Vedic law of India Outlets, Pawnshops and the Poor (Russell Sage
(Rangaswami, 1927, cited in Glaeser and Scheinkman, Foundation, New York).
1998), but we focus here on prohibitions of Middle Caskey, J. P.: 1991, ‘Pawnbroking in America: The
Eastern origin. Economics of a Forgotten Credit Market’, Journal
2
H.R. 3060, the Rent-to-Own Reform Act, was of Money, Credit, and Banking 23, 85–99.
referred to the House Subcommittee on Financial Chafetz Chaim (Rabbi Israel Meir HaKohen): 1976,
Institutions and Consumer Credit in December of Ahavah Chesed: The Love of Kindness as Required by
1997, where it remains. God (2nd ed.). Trans. Leonard Oschry (Feldheim,
3
The translations from the Hebrew Bible all come New York, 118881).
from Jewish Publication Society (1985). Cohn, H. H.: 1971, S.v. ‘Usury’, in Encyclopedia Judaica
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the most beloved and famous of rabbis of the modern Coulton, A.: 1997, ‘MasterCard to Educate Members
era, Rabbi Israel Meir HaKohen (1838–1933). He was on Microloans in Global Anti-Poverty Effort (Low-
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