Notice how President Obama references “religion” in his messaging toward payday lenders and his considerations therein: @03:15 “The Bible is not wild about payday lenders”.
Why religion?
(US News) Obama’s choice of Alabama to pitch new regs on payday lending was no accident: the Southern Poverty Law Center reports that there are four times as many payday lenders in the Heart of Dixie as McDonald’s restaurants, and the high poverty rate makes for easy pickings.
At the same time, the think tank Demos says the predatory lenders tend to feed on poor black communities, where the promise of easy money without a credit check is tempting bait.
But the profits from the lenders flows straight to Wall Street – one key reason industry lobbyists are continuing to fight the new regulations. That includes defeating a cap on astronomical interest rates, described as the Holy Grail of consumer protection advocates. (link)
But why use religion to highlight a point about interest on loans?
Those who choose not to connect the dots are destined never to see them:
A “murabaha sale” is the Sharia compliant way to charge the time value of money in place of interest. Under a Murabaha sale a predetermined fixed amount of value is determined which includes the time value of money.
Example. You purchase a $150,000 home by “financing” $160,000. The $10,000 is the time value of the money borrowed beyond the value of the item (house). You make equal payments until you pay the $160k. The house is then yours.
Example #2 – You borrow $500 and agree to pay back $550 in 30 days. The $50 is not considered “interest”, it is the time value of money agreed by lender and borrower. You are actually borrowing $550, but leaving with $500.
[Related] In order to translate Islamic principles into personal finance, financiers and scholars had to reconstruct Western financing for mortgages and credit cards to make them comply with Islamic law.
That law, or shari’ah, has two main prohibitions: one against the use of ribaa or ribit, also known as usury; and the other against gharar, the unbundled sale of risk, such as gambling, insurance or derivatives.
The very notion of interest is widely condemned by the Muslim world. The key is what are the intentions behind the contract, as well as the type of contract. Scholars agree that interest is expressly forbidden on loans. But the idea of interest itself is not forbidden in Islam, because shari’ah recognizes the time value of money. Many Islamic financiers even use the going interest rate as a benchmark to set their profit margin — a point of contention yet to be resolved by scholars. (link)