Sunday, November 09, 2014

Fairness of bank loans

#‎Islamic_Finance‬: Applying a fixed price for money (interest rate) is unfair for investors and for the society. Islam prohibits the fact that a borrower carries the total risks of the failure while the lender receive a fixed income out of the venture regardless it is a total failure or a total success.

Someone might clain that the lender bear a minimum risk of default. We know that 70% of startup fails during the first three years of operations. We know also that the default rates on interest bearing rates is no more than 2% in good times and 6% in bad times (Federal reserve delinguishy rate).

Hence, faireness is not established and the entrepreneur cost is way beyond his capacity.

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