Charles Geisst and Abdur-Rahman Abou Almajd about beggar-thy-neighbor

Charles Geisst and Abdur-Rahman Abou Almajd about beggar-thy-neighbor. (Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein. ) Verse (2:275) Sahih International.

Chapter (2) sūrat l-baqarah (The Cow)

We have a fresh opportunity to reflect about beggar-thy-neighbor, At this point Charles Geisst isn’t  going to speak about his views on his book but he also speaks about the Islamic finance .

Professor Charles Geisst.

Charles Geisst is an academic, writer and former investment banker. Since 1985, he has taught finance at Manhattan College where he presently is the Ambassador Charles A Gargano Professor of global economics and finance. He is the author of 19 books, including Beggar-Thy-Neighbor: A History of Usury and Debt (2012), Collateral Damaged: The Marketing of Consumer Debt to America (2009) and Wall Street: A History (1997, 2004 and 2012).  Other publications & professional activities include, among others being editor of the Encyclopedia of American Business History, 2005 and Undue Influence: How the Wall Street Elite Put the Financial System at Risk, 2004.

Q: In your latest work Beggar Thy Neighbor You argue that usury prohibitions, as part of the natural law tradition in Western and Islamic societies, First of all I wonder what made you focus on usury prohibitions.

Ch G:  Usury laws have always had a strange place in American and European societies. Although considered antiquated, they remain on the books of many American states in particular so I decided to trace the tradition and try to discover why they remain when they are regularly ignored.

Q: I wonder how law and governments from antiquity to the Reformation sought to regulate usury and eliminate it from daily life.

Ch G:  It was seen as a practice that was basically unfair to the borrower, benefiting the lender.  Usually, governments sought to control demand for borrowed money by passing consumption or sumptuary laws that limited people’s choices, usually for luxury goods or those goods.  By limiting what they could buy, borrowed money would be less important, or so went the theory.

Q: Could you elaborate on how Renaissance Europe allowed usury to thrive outside of accepted society, wherein 17th and 18th-century culture accepted moneylenders as a part of the developing global market.

Ch G:  Money was needed for expansion and exploration in Europe but the idea of risk sharing was limited to partnerships.  Equity investment had not yet developed so debt capital was the only other way of obtaining long-term investment funds. Capitalism developed in the shadow of the usury laws and finally succeeded because it produced expansion and proved they were too general to be applied effectively.

Q: You say that the rise of sharia law in the 1970s Muslim world jumpstarted a reconsideration of the Koran’s prohibition of usury, Could you elaborate on that, please?

Ch G: The oil surpluses of the 1980s left many OPEC and non-OPEC oil producers with large amounts of cash left in Western banks.  The high interest rates in dollars at the time caused many borrowers of those funds from lesser developed countries great problems with loans made by the Western banks.  The net increase in wealth of many Islamic countries made sharia compliant banking a possibility and suggested that there was a better way of banking without impoverishing borrowers.

Q: I want to know why you don’t seem optimistic about the future of usury in the United States. Despite the success of the Dodd-Frank Wall Street Reform Act in passing through Congress.

Ch G: Usury laws in the US have mainly been a political matter rather than an economic one.  All states have had usury laws and the federal government never passed one despite attempts in the past.  As a result, in order to pass one effective law, Congress would have to override the states’ laws which will probably never happen.  Dodd-Frank mentions usury but only in this context.  Congress cannot pass a usury law as part of financial reform if it runs counter to the state laws.  That is a mess.

Q: Well, You’re right, I agree with you about the future of usury, I wonder if you optimistic about  Islamic societies which not only followed the Koran’s regulations but also helped families get out of poverty while fostering communities.

Ch G:  I think prospects are better in those societies where there is a general agreement on the drawbacks of usury.  Whether they prohibit riba or just limit maximum rates of interest requires a broad consensus and there is none of that in the West which holds to free market concepts, regardless of the social costs.

Q: The chapter on Islamic finance, how do you see the development of the takaful industry?

Ch G:  As a mutual concept, takaful is different from Western insurance, at least life insurance, by limiting the beneficiaries of a policy to those who are related to the insured, like members of the family.  That may effectively limit gambling from the discussion by excluding using insurance as speculation but could possibly limit other economic benefits to individuals not related by blood to the insured, such as employers who may want to insure the lives of important employees.

Q: As a former investment banker, how do you see financial services being sharia compliant in Islamic states such as Saudi Arabia and others which began using them within the last twenty years?

Ch G: I think financial services following fiqh a muamalat are useful but they do require extensive monitoring in order to be sharia compliant and that monitoring is costly.  The price will have to be paid by the customer.  That is a major complaint from investment bankers who understand the issuance of sharia compliant securities especially.

Abdur-Rahman Abou Almajd: I would like to express our thanks and gratitude to you, Thank you very much, Professor Charles Geisst.

Charles Geisst :  It is my pleasure.  More needs to be known in Western finance about Islamic finance, especially in the United States.