Within the right ethical parameters, charging interest can be morally permissible and even beneficial. But we should always stay mindful of the real risk of exploitation.

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Interest-bearing loans monplace in today’s economy, but are a subject of great contention in many of the world’s great intellectual and religious traditions.

The Mosaic Law dictates: “If you lend money to any of my people who are needy among you, do not be like a moneylender to him; do not charge him interest” (Exodus 22:25). Thomas Aquinas argued that “[t]o take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality which is contrary to justice.”

The Qur’an condemns riba, a word often translated “usury” and thought to include lending interest, stating that “those that live on riba shall rise up before God like men whom Satan has demented by his touch” (2:275). Many Muslims avoid interest by not taking out mortgages, using credit cards, or opening interest-bearing bank accounts. This challenge has led Islamic banks to use innovative methods to provide valuable banking services without charging interest.

Interest can certainly be immoral in many cases. Often it is charged deceptively and with excessively high rates or fees. Although both parties enter into loan contracts voluntarily, borrowers are often moved by desperation or do not understand the terms of the agreement. Before bankruptcy laws, insolvency even led to the enslavement of many borrowers and their families.

Within the right ethical parameters, however, it can be morally permissible to charge interest. Here are three reasons why.

First, due to the time value of money, “a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim.” It is more valuable to have $100 today than $100 a year from now, because one can invest the money and turn it into more than $100 in a year’s time. If having $100 today is equally valuable to having $105 in one year, then lending someone $100 with a five percent interest rate is a fair exchange, as it trades two sums of equal value.

Second, interest loans are sometimes mutually beneficial for the borrower and lender. Business loans enable entrepreneurs to start ventures that benefit society. Mortgages enable families to raise their children in homes with their own yards. Despite the problems exposed by the student debt crisis, even student loans can provide value, making education accessible to people who would not otherwise be able to go to college.

Third, interest makes it possible for institutions to offer loans. Since some borrowers are unable to pay their debts, lenders incur risk each time they give out a loan. By offsetting this risk, interest makes loans widely available and thereby enables the benefits described in point two above.

Many Christian scholars today recognize these points, arguing that the Old Testament prohibitions apply only to specific kinds of interest present within the Bible’s historical context. Some Muslim scholars also permit certain kinds of interest, but riba remains one of the most controversial topics within Islamic economics.

While interest-bearing loans are often morally permissible and even beneficial, we must always be mindful of the potential harms of interest and use it only to benefit borrowers – never to exploit them.