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Compensation for Opportunity and Grace Period

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According to some, it is the opportunity to benefit from borrowing which entitles the lender to claim interest from the borrower. But as noted earlier, this opportunity cannot entitle him to demand as a cost, a predetermined, definite amount on a multiplying basis. There are also those who try to justify the system of interest on the basis that it is in lieu of the grace period allowed to a borrower for use of the principal sum. The lender, therefore, has every right to demand his share of the benefit that is earned by the borrower utilizing this period of grace. The pertinent questions still remain unanswered, however. (i) How can the lender foresee that the borrower will definitely earn a profit from that money? (ii) How can he determine in advance the rate of that profit, on which he demands his share? (iii) On what basis can he precisely calculate the monthly or yearly rate of the profit that the borrower will earn during the grace period in advance? The advocates of the system have no convincing answers to satisfy these questions.

Sharing of Profit

Some advocates of interest believe that profitability is intrinsic to capital and that the mere use of capital by the borrower is a cogent reason that entitles the lender to demand interest. The very premise of profitability as intrinsic to capital is fallacious. The quality of profitability is generated in the capital, only when it is invested by an entrepreneur in a productive venture. How can one use this justification in the case of a borrower using the capital to meet a dire need? Secondly, capital invested in profitable ventures does not necessarily add more value. Whatever potential quality the capital may have depended on so many other factors including hard work, physical and intellectual experience, the economic and socio-political atmosphere, and safety from natural calamities.

These are among the essential preconditions for capital to bear fruit. A capitalist who invests in interest-based ventures, however, neither shares the responsibility for the fulfillment of these preconditions nor is ready to forego his interest in the event of any mishap. Even if we accept the claim about capital’s profitability, how can this rate of profitability be calculated in advance?

Compensation for Time

The last plea in this context has been more intelligently devised. This seeks to press that one is naturally keen to get an immediate return on investment, preferring today’s cash over tomorrow’s credit. On the basis of this hypothesis, the certain gains of today naturally have precedence over the dubious benefits of tomorrow. The value of a loan that a person takes today is therefore much greater than the amount he would pay back to the lender tomorrow. The interest is that additional value that compensates for the loss a lender incurs in the intervening period on his principal sum. However, is it factually correct that human nature tends to value the present much more than the future? If this is the case, why is it that the majority of people prefer to save as much as they can afford for the future, rather than spending all their earnings today? Even if we accept the hypothesis that one can forgo tomorrow’s loss for today’s gain, can money’s future value be predicted with certainty?

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