Interest Prohibitions and Contract Design in Medieval Christianity and Islam

Abstract

Abstract

Purpose ‒ This paper compares how religious constraints on interest-bearing lending shaped medieval credit mechanisms in Western Europe and Islamic legal traditions, emphasizing contractual classification under interest prohibitions.Design/Methodology/Approach ‒ This study uses a mechanism-based comparative historical analysis, treating doctrinal prohibitions as constraints on legal classification and tracing how actors used contract design and documentation to comply.Findings ‒ In Western Europe, compliance commonly took the form of indirect, formally licit instruments that embedded return in exchange, contingency, or compensation. In Islamic legal traditions, permissible return was more often structured within trade and partnership, with greater emphasis on asset-linkage and explicit risk allocation.Originality/Value ‒ The paper’s originality lies in specifying a classification-based mechanism that links interest prohibitions to observable credit outcomes. It adds to prior comparative accounts by making the causal pathway explicit, and it contributes a relatively rare cross-tradition medieval comparison by deriving testable propositions about how return is publicly justified through contract form, record-keeping, and risk allocation in Western Europe and Islamic legal traditions.Research Limitations/Implications ‒ The analysis synthesizes doctrinal and secondary historical sources and does not present new archival datasets or prevalence estimates.Practical Implications ‒ By foregrounding classification and risk allocation, the framework clarifies recurring form–substance disputes under interest prohibitions and highlights where compliance is most sensitive to documentation, ownership transfer, and the allocation of downside risk.Social Implications ‒ Religiously grounded financial norms shape access to credit and the perceived legitimacy of financial arrangements.