Loans - No Interest
If borrowers can guarantee to repay loans, I don’t think they should have to pay interest. This isn’t just wishful thinking. The interest paid on safe loans has the same function as prices of raw materials as discussed in the last section. There isn’t enough savings available to meet the needs of everyone who wants to borrow. Interest is charged to reduce demand for loans to the supply available. As with raw materials, interest reduces demand for loans. Unlike the raw materials case, interest can actually increase the supply of loans by encouraging people to save more. Despite the extra wrinkle in supply, the purpose of charging interest is still to match the supply and demand of loans.
The underlying problem is that the reasons people save money aren’t related to the reasons people borrow money. Savers save to buy big-ticket items, to build up a cushion to see them through tough times, and to pay for their retirement. People borrow to buy expensive things like cars and houses. Businesses borrow to bridge the time gap between expenses and revenues. There is no reason for the total amount saved to be close to the total amount people want to borrow.
The simple, direct approach for addressing this problem is for the government to build up the wealth of the country so that there is enough savings to meet the needs of people who want to borrow. Governments already make long-term investments in research, education, and infrastructure that don’t pay off for decades. Building up national savings would be just one more step that governments could take to make a country a better place to live. So long as the demand for loans is finite, the government could try to meet the demand. The demand for loans is addressed in the next section.
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Comments
Name: nighat hyat
E-mail: Private
Date posted: October 31, 2009 - 03:33 pm
Message:
Hi,i'm pleased to see that some of our scholar awakened and notice the flaws of free market economy.i humbly suggest you please once have a look on Quranic rules to manage economy.if we follow that lines the wealth would not be seized in few hands.what ever i read on interest from your site this give idea to tell you about interest free econmy imposed by God.its near to free market economy as wel as some what controlled.being a student may i not very helpful but islamic idea of economy give you really noval ideas,which you may incorporate with your experience and thougts and may give the better economic system where there are some balance of wealth between poor and rich.thanks alot and keep thinking may God bless you.
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