You made the following question. I had to assume the word ‘Borrower‘ for Lender. Please inform me if I am wrong.
Why – on what basis – would the borrower demand a predetermined rate of increase on the amount that he has actually lent?
1st logic: first we must be clear of the word amount here. I am sure you mean money. Well by the word money we mean anything, which is generally acceptable as a medium of exchange and which is measure of value. In early days people have also used food for this purpose then precious stones have been used for a long time. Now a days currency note fill the purpose.
The point is when we lend an amount to someone its basically the value of the wealth/assets we posses and instead of keeping it in currency form we can also keep it in the shape of assets and then offering that asset we can charge a rent like by converting the currency in to a house or a car we can charge rent or fare then why not charge interest, a predetermined rate of increase according to you, on the loan.
2nd logic: there are four factors of production namely Land, Labor, Capital and Entrepreneurship. The reward for each factor is respectively rent, wage, interest and profit. None of these factors is a free good that no price should be charged for it. Except for entrepreneurship reward for each factor is a predetermined rate.
3rd logic: in short there is a price for loan and it is determined on market basis. Interest is not forced on a person it is the price that the consumer is willing to pay and seller willing to get. Interest rate is determined on market basis sometimes its high some times its low. So there is no injustice here.
Fourthly, I want to comment on your answer to someone in which you tried to differentiate rent from riba.
You said that house is not consumed. You know everyone who pays a price for something is a consumer.
The tenant is consuming the service of the house and thus paying the price, which maybe equal or less then the utility he is getting from it. To consume doesn’t mean to waste, it means to extract utility (satisfaction) from the good or service. After using the service he has to return the house so is the case of loan after using its service it has to be returned. But in case of loan the value of money is not appreciating like it is for the house as you know the land is scarce and its price always appreciates that is why rent of a property is sometimes less then the interest on the amount equal to the price of that house. The money in fact is depreciating cause of inflation.
In case of loan it also has to be returned but if the borrower is unable to do so then he can pay back in things of the value of that loan which cannot be done in case of a house. For instance if a lender has lent Rs 200,000/- to a borrower and a borrower bought a car for it. Now if a borrower is unable to pay back in money he can give that car to the lender evaluating on the current market basis which may be higher than 2 lakhs or less. This is because it is generally understood that money itself is not a thing rather it represents other things or services. Rs 1 lakh might represent one year of my hard work.
So, from the economic point of view there is a price for loan whether you acknowledge it or not. And it has to be predetermined like rent or wages.
I apologize for the mistake and thank you very much for your correction.
My dear brother, I had referred you to my previous response, the first time you sent me a question, so that you may take a look at the difference between the concepts of ‘Riba’ and ‘Rent’ as per my understanding. I assume that you did take a look at my referred article. Do you not agree with my opinion regarding the difference between ‘Riba’ and ‘Rent’? In case you do, then you should be well aware of my reservations in accepting what you have termed as the ‘first logic’. In case you don’t, I would appreciate if you could kindly point out the basis of your disagreement.
Your second logic is based on the capitalistic economy theory. This is neither a divine principle nor a logical premise for our discussion. Making it a premise for our discussion would mean that we pre-suppose the justification for interest and then try to reject its justification. Don’t you agree?
Your third argument is that interest is the cost of a ‘loan’. This argument is only an extension of the second argument, which pre-supposes the justification of interest. I really do not think that it answers my question. Allow me to give you an example. Suppose I ask my brother for a ‘loan’ to fulfill a pressing need. I ask him to lend me the money, only if he has some spare money (saving). I promise to return the total amount (or total value) lent, in one year (only if he can afford to part with the money and spare it for one year). Now, if I do return the total value that I had borrowed after one year, what would be the justification (on my brother’s part) to ask for more value than what he had actually lent? Please keep in mind that:
I am only asking for money if my brother can spare it (lying idle);
It would be a loan, the value of which shall be returned in full;
The money borrowed may not produce anything at all.
What, now, is the moral justification for asking for more ‘value’ from the borrower, than was originally lent to him?
For your argument comparing ‘Rent’ and ‘Riba’, I would once again request you to take a look at the related portion of my article on ‘Riba’. It would only save me from reproducing something, which I have already written. You may access the article at the website: Issues Relating to the Prohibition of Riba. In this article, please read the section titled: “Is There any Difference Between Riba and Rent?”
Please also keep in mind that charging ‘Riba’ is not the same as accounting for depreciation in the value of money. In fact, accounting for depreciation in the value of money is NOT prohibited, while charging ‘Riba’ is unequivocally prohibited by the Qur’an.
After using the service he has to return the house so is the case of loan after using its service it has to be returned.
That is true. Nevertheless, the nature of the return in both the cases is significantly different. In the case of a house, the item being returned is a ‘used/depreciated house’, whereas in the case of the loan, the original ‘value’ is being returned.
But in case of loan the value of money is not appreciating like it is for the house as you know the land is scarce and its price is always appreciates…
That is not always the case.
The money in fact is depreciating cause of inflation.
Any adjustment in the amount of the loan to account for ‘inflation’ is absolutely justified. The lender is absolutely justified in asking for the return of the same value, which he had ‘lent’ days, months or years ago. Charging ‘Riba’ is not the same as accounting for inflation.
In case of loan it also has to be returned but if the borrower is unable to do so then he can pay back in things of the value of that loan which cannot be done in case of a house.
It is not even required in the case of a house, because the house itself is a long term asset. However, if the house is destroyed in a catastrophe, the loss is suffered by the owner of the house. This, obviously, is not the case in a loan. It is not the lender, but the borrower, who suffers, if the loan is destroyed. In such a case, the borrower is not only supposed to return the ‘loan’, which is quite justified, but also a predetermined additional amount – which lacks all moral justification.
… from economic point of view there is a price for loan whether you acknowledge it or not.
Please rest assured that I would have no objections in acknowledging the ‘price’ for loan, if you would give a moral justification for it. As far as the ‘economic’ point of view is concerned, I am well aware of it.
… and it has to be predetermined like rent or wage.
‘Rent’ and ‘wages’ do not seem to have anything in common with ‘Riba’. The former two are the payment of a hired service, while the latter is a time-based charge on the ‘sale of an asset (whether a monetary asset or a real asset)’.
I hope this helps.
February 21, 2001