The usury it is the act of lending money with an interest rate that is considered unreasonably high or that is higher than the one allowed by law.
Why does usury exist?
It is simply a financial market failure, one of the most imperfect markets in human history. Information failures, the oligopolistic power of the bidders and, in the case of weak regulatory institutions, regulatory capture. All these topics are typified in the literature and for that reason, we should not be surprised that in almost the entire Western world the usury regulation, as a way to avoid the abuse of the market power of formal Banks and Financial Companies and to put an end to judicial collections in the informal matter. However, with the development of new products and the increasing informalization of financial services, usury laws they have fallen short, since merchants who sell forwards and a number of unregulated actors are added, many of them operating in the informal credit market.
History and religion
It was first common during the reign of King Henry VIII in England, during the early part of the 16th century.
Load interest on a loan it is not a new concept. But in the England of that century, limitations were placed on the percentage of interest that someone could charge on a loan.
Likewise, throughout history, certain religions have not only spoken out against usury, but also against imposing interest on a loan, since it goes against their fundamental ethical and moral principles. Specifically, Judaism, Christianity and Islam – the three Abrahamic religions – have taken very severe positions against usury.
Since in ancient times the first loans were made between small groups and between individuals – in contrast to the modern banking system – applying a strict social standard was of essential importance.
Many passages in the Old Testament condemn the practice of usury, especially when money is lent to people with a lower income and without access to other means of financing.
In the Jewish community, this created the rule of only charging interest on loans outside the community.
The Old Testament condemnation against usury also led to the Christian tradition of being against the practice of lending money; Some Christians think that the borrower should expect nothing in return.
The 16th century reform in England began to distinguish between usury and charging low interest rates, which, historically, Islam has never differentiated.
Careful
In short, for citizens, once a formal credit has fallen out of favor with banks, finance companies, cooperatives and even “solidarity” associations, the usurer of informality ends up ruining them. The car, the house, the goods are lost and in some cases, the highest personal consequences are reached, losing the family and the dignity.
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