Humanity has rebelled against high lending rates for at least 4,000 years

President Uhuru Kenyatta signing into law the Banking (Amendment) Bill, 2015 at State House, Nairobi. PHOTO | PSCU

What you need to know:

  • Riba (high interest) was of course strictly forbidden in the time of Prophet Muhammad.
  • The term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent.
  • In Ancient Babylon, more than 4,000 years ago, King Hammurabi presided over a system of lending between his subjects.
  • Sometimes the loans in ancient Israel would take the form of grain just as in ancient African societies.
  • John Maynard Keynes argued in 1930 that it might be necessary to allow banks free rein in pursuit of the societal goal of “economic abundance”.

Congratulations, members of parliament, for finally getting a Bill capping interest rates through the House and for persuading the President, against all expectations, to sign it into law.

The Bill you passed, though, was about 4,000 years too late. The newspapers will be filled in the next few weeks with analyses of the meaning of the landmark law, with commentators weighing in on both sides.

Here’s a more light-hearted approach. Let’s take a look at what people have said down the years about usury (the practice of lending money at unusually high rates which everyone including the Kenyan bank lobby agrees that’s what they have been doing).

Usury was forbidden long before the days of Christ. The great Greek philosopher, Aristotle, had strong words on the subject of high interest rates: “The most hated sort (of trade), and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it.

For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural.”

In Ancient Babylon, more than 4,000 years ago, King Hammurabi presided over a system of lending between his subjects.

In later years in ancient Israel, lenders developed practices that were remarkably similar to today’s bankers. They charged some money before the funds were lent out, a fee called neshekh was deducted from the loan before the money was handed over (think about today’s commitment fees and insurance charges and whatnot), while marbit/tarbit was the interest charged on the loan.

This is probably what prompted the Old Testament injunction in Ezekiel 18:13 against money lenders: “He lends at interest and takes a profit. Will such a man live? He will not! Because he has done all these detestable things, he is to be put to death; his blood will be on his own head.”

Sometimes the loans in ancient Israel would take the form of grain just as in ancient African societies. In Africa, though, interest was rarely charged but there were still defaulters as we know from the example of Unoka, Okonkwo’s famously lazy father in Things Fall Apart.

Riba (high interest) was of course strictly forbidden in the time of Prophet Muhammad, an order that holds to this day: “Those who swallow down usury cannot arise except as one whom Shaitan has prostrated by (his) touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury.”

EXTORTIONATE RATES

Nor were extortionate rates of interest permitted in ancient Indian tradition: “It is Usury — the rankest, most extortionate, most merciless Usury — which eats the marrow out of the bones of the raiyat [cultivators] and condemns him to a life of penury and slavery.”

Thomas Jefferson, one of America’s founding fathers, had this to say on the danger of allowing banks too much say on public policy:

“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” (Thanks to reader John Kabiru for sending this in).

The poet George Herbert dismissed the subject with just one line: “To speak of a usurer at the table mars the wine.” 

Of course, not everyone was opposed to the practice. The economist John Maynard Keynes argued in 1930 that it might be necessary to allow banks free rein in pursuit of the societal goal of “economic abundance”.

“For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.”

This was not a view the Russian author Leo Tolstoy would buy, with one of the characters in Anna Karenina railing against those that cannot clearly define “the borderline between honesty and dishonesty.

‘Like the profits made by banks. This is evil, I mean, the acquisition of enormous fortunes without work.”

Perhaps the last word should go to the economist Joseph Stiglitz who, although not addressing the subject of interest rates, has been a fierce critic of the hell-for-leather pursuit of profits by banks which many blame for triggering the 2008/9 global financial crisis: “A banking system is supposed to serve society, not the other way around.”