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Reasonableness of an Interest Rate

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The rationale for interest notwithstanding, arguments are also focused on what is a ‘reasonable’ and, therefore, acceptable rate of interest. The world has so far known no rate of interest that can be claimed as reasonable. Different rates that were declared as reasonable on different occasions were eventually rejected as unrealistic and unreasonable.

For example, a 10 percent rate was viewed as reasonable in England in the sixteenth century. In the 1920s, some European countries charged eight to nine percent interest. Today the West rejects the old rates as too exploitative and has settled on new rates ranging from 2.5 to 4 percent, with the rate going down even further to ½ or ¼ percent in some situations.

In reality, whereas moneylenders fix the rate of interest in terms of the borrower’s constraints and needs, rates of commercial interest are fixed by market manipulators on considerations that have hardly any relevance to the dictates of justice and fair play.

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