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Usury Laws Explained

31/08/2017
Reading Time: 3 mins read
Mr. Kwasi Kyere, ghanatalksbusiness.com
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I visited a former boss of my mine, the man I call a financial guru, who trained me as a financial analyst, and whiles having a detail discussion on the financial sector of Ghana and challenges confronting the sector in Ghana, this subject of Usury Laws, came up, so I decided to research and write something about it, for deliberations as a nation. In the wake of the UT and Capital Bank issues (and the swift intervention by the Bank of Ghana) and the DKM issues and the challenges facing the microfinance sector, a lot of discussion is ongoing and there is the need to explore some of them and share to move forward as a nation and help shape up our financial sector together. It is not only the business of government and Bank of Ghana, but we are part of government and we need all hands-on deck to think through issues, learn and allow the government of the day to provide the enabling environment for businesses to thrive. When people invest where they should not and demand what they should demand and problems arises the immediate blame is put at doorstep of Bank of Ghana. We need to learn as people and stop the blame games. I strongly believe that despite the challenges facing the microfinance sector, it has a greater future for this nation. As a novelty, if government provide the right support and environment and if we do not demonize the sector and pay important attention to it, it is one that can help reduce poverty, help the poor, create entrepreneurial skills among poor people and elevate them from it and expand financial inclusion as far as this nation is concern. Now back to the subject of the day, the usury laws. I am providing information on issues from all angles and how and what we need, to move our nation forward. Even though I have drawn a conclusion there is still the need to assess its effectiveness and other ways of helping our financial sector to look at the issue of interest rates.

What It Means
Usury laws in the United States limit the fees, called interest, that lenders can charge those who borrow money. Usury laws vary from state to state, from one country to another and they consist of a maximum rate (a percentage of the total loan amount) that lenders can charge.
Though usury today is defined as charging more interest than the law allows, many civilizations in history defined usury as charging any interest at all and either looked down on the practice, made it illegal, or limited its use. The distaste for interest generally stemmed from a belief that one should not be able to collect money from someone without doing anything to earn it, and religious societies tended to believe that interest was incompatible with morality. Gradually interest came to be considered a necessary part of ordinary business, and lenders were providing a useful and valuable service. Prejudices against the practice are minimal in the modern world, but many people still worry about the ability of large lenders such as banks and credit card companies to take advantage of consumers.
Today’s usury laws, therefore, are meant to prevent abuses by lenders. If a business that charges interest violates a state’s laws, it may be fined, prevented from collecting any interest from the consumer, or both. While usury laws were phased out in much of Europe in the latter half of the nineteenth century, they persist to this day in many countries of the world. Japan and Korea, for example, have severely restricted interest rates (Glaeser and Scheinkman, 1994). In many Islamic countries, it is illegal to charge interest, or riba, unless it is tied to profits. Usury laws are prevalent in the United States as well, where most states have laws setting limits on interest rates.

Read full article here

Author:  Kwasi Kyere, PHD Finance Student
STAR ALLIANCE MICROFINANCE LIMITED
EMAIL; kyerekwasi@yahoo.co.uk or kyerekwasi366@gmail.com

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