Usury and Just Compensation: Religious and Financial Ethics in Historical Perspective Constant J. Mews Ibrahim Abraham ABSTRACT. Usury is a concept often associated more with religiously based financial ethics, whether Christian or Islamic, than with the secular world of contemporary finance. The problem is compounded by a tendency to interpret riba, prohibited within Islam, as both usury and interest, without adequately distinguishing these con- cepts. This paper argues that in Christian tradition usury has always evoked the notion of money demanded in excess of what is owed on a loan, disrupting a relationship of equality between people, whereas interest was seen as referring to just compensation to the lender. Although it is often claimed that hostility towards ‘usury’ has been in retreat in the West since the protestant Reformation, we would argue that the crucial break came not with Calvin, but with Jeremy Bentham, whose critique of the argu- ments of Adam Smith, upholding the reasonableness of the laws against usury, led to the abolition of the usury laws in England in 1854. There has to be a role for law, whether Islamic or secular, in regulating financial rela- tionships. We argue that by retrieving the necessary dis- tinction between demanding usury as illegitimate predatory lending and interest as legitimate compensation, we can discover common ground behind the driving principles of financial ethics within both Islamic and Christian tradition that may still be of relevance today. By re-examining past ethical discussions of the distinction between usury and just compensation, we argue that the world’s religious traditions can make significant contri- butions to contemporary debate. KEY WORDS: usury, Interest, Bible, Islamic finance, middle ages, predatory lending, religion, financial ethics Introduction Usury is no longer a concept frequently invoked in contemporary discussion of financial ethics. The term evokes a vague notion of ‘charging excessive interest’ that is difficult to clarify philosophically and is even more difficult to enshrine in legislation. If one accepts as ethically correct the principle of charging interest on a loan, namely demanding money over and above the principal of a loan, how can one establish what constitutes ‘excessive interest’? In the contemporary world of mainstream finance, the practice of charging interest is considered so normal, that it is presumed to be driven by market forces, and not to have an ethical dimension. The great exception to this in recent decades has been the emergence of a movement known as Islamic finance, initially developed in the 1970s as an alternative to conventional Western finance, and based on the prohibition of riba – often translated as interest, but perhaps closer to the medieval Christian notion of usury. In Western eyes, this practice of prohibiting riba may seem arcane and irrational, and based simply on the authority of a religious text, rather than as a concept potentially relevant to discussion of contemporary financial ethics. Paradoxically, recent scholarly investigation into the precise meaning of riba, shown by Saeed (1999) to be much contested within different schools of Islamic thought, highlights that its prohibition is part of a wider ethical framework concerned with preserving justice and equity in financial relation- ships, very similar to contemporary concern with predatory lending. With difficulties in meeting Constant Mews is Director of the Centre for Studies in Religion and Theology at Monash University. He holds PhD and Masters degrees in medieval history, and pursues research in medieval religion, thought and ethics. Ibrahim Abraham is a PhD student in the School of Political and Social Inquiry, Monash University, with degrees in religion studies as well as law. His research interests include religion and culture, fair trade, and human rights. Journal of Business Ethics (2007) 72:1–15 Ó Springer 2006 DOI 10.1007/s10551-006-9151-0