The Prohibition of Loan at Interest: Principles and Current Developments

These days, even countries sometimes have difficulties repaying just the interests generated by the debt. But, strangely, the medieval doctrine banned the charging of a profit on the lending of money. This theory advocated only the benefit generated from the capital invested should be shared between the lender and the borrower ex post according to an agreement drawn up ex ante. This article analyses the contribution of this theory and its underlying concepts. Part I presents the theories of rate regulation in the Ancient world. Part II analyses their developments in the Middle Ages under the influence of the canonists until the end of prohibition of usury in the 18^th century. The medieval approach is making a come back in France under a new form: the Islamic finance which outlaws interest and advocates the sharing of benefits. Part III examines the underlying doctrine of this form of financial intermediation to better understand its principles, differences with the scholastic theory and development paths.