-Interest: Premium asked for lending money
-Usury: Charging excessive interest on loans
-Bank: Financial institution that makes money savers and borrowers meet by acting as an intermediary. -Religion: A collection of belief systems, cultural systems, and world views that relate humanity to spirituality and, sometimes, to moral values. -Moral values: The standards of good and evil, which govern an individuals behavior and choices. Once we have defined these key terms, we can start asking ourselves all the ethical aspects that money, religion and moral values involve. In one side we have seen thru years when people need a car, a house, a credit card, etc. they usually go to a bank and ask for a loan. It works very easily nowadays, but it was not that easy in the past. Many years ago people used to resort to people called usurers, who charged very high interest rates on loans, making impossible for the borrower pay off his debt.
Regarding the agency cost theory, we could say that lenders of money belong to the principals group, and the borrowers belong to the agents cluster. But this is not it, because there are other 2 players in this game: The religion; which says: Do not charge interest on the loans for your people, only foreigners (strange, isnt it?), and the government, who makes the rules of this game to make it look fair. Now, with the addition of these new players it is possible to say that religion and government are the principals and the lenders become agents now. Having the main information available we are now allowed to ask ourselves: Is it ethical to take interest?
The answer to this question is not that easy anymore, right? On the one hand, if we follow the religious way, we can say it is not ethical to charge interest on loans (unless they are for foreigners). But let us think it again, if lending represents the main revenue for a bank or for a lending person, how would be possible for these entities to survive? Is it not fair to ask a person a premium for the money lent and the risk of not getting it back taken? Charge low interests! some would say, the answer sounds fair and precise, but still far away from correct. We still are facing the ethical dilemma: -Fairness vs. ambition: Why is that difficult to charge fair interests on loans? Because a lot of people always want more and more. That is why people still use the term usury to refer to these unfair practices between the principals and the agents for this case.
The reality is that there is not and alternative or an option that can meet the both sides of the coin. The most accurate answer that could fit the most would be ironically another question: Why not to make a venture? It sounds fair enough, the lender takes some of the risk form the borrower and at the end, it is the lender who takes the premium from the risk taken, but only if the borrowers project success. Obviously this is not that easy as it seems, the lender is not obligated to take any venture, just the ones that it considers that fit the requirements and expectative. So then we can say the lender is not taking interest but taking a risk, a joint venture, and a premium, not an interest, for its investment.