Another way of banking, with no interest

In forest management we use discounted cash flow or compound interest to reflect forest values at different times in the life of the forest. We can also use it to compare costs that occur at different points in time.

As it says in the text book interest was condemned by the Church in Europe up to the Middle Ages as usury. Interest was condemned in the Bible as an unjust way to earn a living.
Only in the Renaissance did the practice of charging interest become acceptable as legitimate.

The prohibition against interest remains in Islam. In Islamic, or Sharia, law banks can charge fees for a service. They can also earn profits on services they provide. According to a recent AP article in the Chambersburg Public Opinion (1/14/09)  they cannot have money grow by itself, as it does with compound interest.

According to the article University Islamic Financial, a subsidiary of University Bank in Ann Arbor Michigan, is the only Sharia bank in the United States. The managers of the bank argue that the current US banking crisis wouldn’t have occurred if American banks followed their rules. For example, the bank offers two types of home financing; a marked-up installment sale and a lease-to purchase sale. Fees in both arrangements are similar to interest payments in traditional loans.

It is unlikely that our modern financial system, with its rapid growth but its unfortunate tendency to undertake too much risk, could have evolved without interest, but it is interesting to see an alternative to what we have now.   

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