When we talk about banks, loans or even money, it is very common to hear words such as interest, usury, risks, etc. We mention these words very often and many times we do not even know what they mean. But this is not it; it gets more interesting when we start linking all this stuff with other topics such as religion, ethics and moral values. Going back to the beginning, when we start talking about banks and money, it is known by everybody that banks’ main business are the loans and the interests they ask for them, which many people do not like. They also refer to the banks as usurers, arguing that the interest rates they charge are too high. But who decides (knows) the fair rates to charge? Why people call banks usurers? What is money at the end of the day? It is important to have in mind the meaning of all these words in order to be able to have a judgment of what this topic is about. First of all, let us start by defining some important terms: -Money: According to Aristotle, “money is just a simply instrument of measure, relating the value of two goods to each other.”
-Interest: Premium asked for lending money
-Usury: Charging excessive interest on loans
-Bank: Financial institution that makes money savers and borrowers meet by acting as an intermediary. -Religion: A collection of belief systems, cultural systems, and world views that relate humanity to spirituality and, sometimes, to moral values. -Moral values: The standards of good and evil, which govern an individual’s behavior and choices. Once we have defined these key terms, we can start asking ourselves all the ethical aspects that money, religion and moral values involve. In one side we have seen thru years when people need a car, a house, a credit card, etc. they usually go to a bank and ask for a loan. It works very easily nowadays, but it was not that easy in the past. Many years ago people used to resort to people called usurers, who charged very high interest rates on loans, making impossible for the borrower pay off his debt.
Regarding the agency cost theory, we could say that lenders of money belong to the “principals” group, and the borrowers belong to the “agents” cluster. But this is not it, because there are other 2 players in this game: The religion; which says: “Do not charge interest on the loans for your people, only foreigners (strange, isn’t it?)”, and the government, who makes the rules of this game to make it look “fair”. Now, with the addition of these new players it is possible to say that religion and government are the principals and the lenders become agents now. Having the main information available we are now allowed to ask ourselves: Is it ethical to take interest?
The answer to this question is not that easy anymore, right? On the one hand, if we follow the religious way, we can say it is not ethical to charge interest on loans (unless they are for foreigners). But let us think it again, if lending represents the main revenue for a bank or for a lending person, how would be possible for these entities to survive? Is it not fair to ask a person a premium for the money lent and the risk of not getting it back taken? “Charge low interests!” some would say, the answer sounds fair and precise, but still far away from correct. We still are facing the ethical dilemma: -Fairness vs. ambition: Why is that difficult to charge fair interests on loans? Because a lot of people always want more and more. That is why people still use the term usury to refer to these unfair practices between the principals and the agents for this case.
The reality is that there is not and alternative or an option that can meet the both sides of the coin. The most accurate answer that could fit the most would be ironically another question: Why not to make a venture? It sounds fair enough, the lender takes some of the risk form the borrower and at the end, it is the lender who takes the premium from the risk taken, but only if the borrower’s project success. Obviously this is not that easy as it seems, the lender is not obligated to take any venture, just the ones that it considers that fit the requirements and expectative. So then we can say the lender is not taking interest but taking a risk, a joint venture, and a premium, not an interest, for its investment.