Ahmed Danyal Arif, MA Economics and Politics
Once upon a time, economics was the science of managing a household, then a subset of religious, theological, ethical and philosophical disciplines. But, little by little, it seems financial and debt issues became a repelling subset of mathematics, avoiding opinions as to what is good or bad. To give her mind the capacity to grasp the whole, I decided to make the experiment of explaining to my six-year-old daughter the prohibition of interest as stipulated by Islam:
“Imagine you need £100 to buy something, but you don’t have that amount of money. I have £100 and you have the possibility of borrowing it from me with the condition that you would give me £110 later.”
She looked at me innocently and said, “I don’t think this is really fair, Papa.”
“Oh, why is that?,” I asked.
“Because you only gave me £100 and you’re asking me for £110 back.”
“But you know the banks do that, they can even create £100 ‘magically’ and lend it to you.”
She slightly frowned at me and said, “If that was real, I just wouldn’t go to the banks!”
Three things are apparent from this rather amusing experiment.
First of all, based on her assertion that “if that was real,” I am fairly confident in saying that she did not believe me. It is inconceivable for a human being to magically create something (in this case, money) without any effort. It is hard to believe, and yet it is true. Banks can create money through the accounting they use when they make loans. The figures we see when looking at our accounts’ balance are just mere accounting entries in the banks’ computers — that number did not exist before, and so the bank has created money out of nothing just by entering a number into your account’s balance. These numbers are a “liability” or an acknowledgement of debt (IOU) from the bank to the account. However, by using a debit card or internet banking, one can spend these IOUs as though they were the same as normal notes and coins.
Secondly, she believes it is unfair and the just price of £100 is neither more nor less than £100.
Here is another reason why interest has been prohibited in Islam. Indeed, in economic life, the fundamental unit is bound by the transaction involving at least two people. To make a just economic transaction, our conduct is bound by considerations of reciprocity and treating the other parties as we have been treated by them (‘adl). Thus, nowhere else does the golden rule “Do unto others as you would have them do unto you” apply more in economics than in any other field, and this is so because this rule involves an exchange and a transaction.
Finally, her innocent answers prove that interest is simply unnatural. She does not possess any financial skills or knowledge. Her words are the expression of basic human nature, which is not developed under the influence of environmental factors. What is not balanced (just) cannot be natural.
Try this experiment with any kids and you might be amazed and surprised how Islamic teachings are in tune with human nature!