Buiter writes: “If if were viewed as a gift from the lender to the borrower it might even be condoned.” This is true; but a “gift” (whether from lender to borrower, or vice versa) can not, by definition, be by prior contract.

The rationale for the prohibition of riba is slightly different from the analysis that Buiter presents. In brief, in Islamic law, acts are judged by intent. In “transactions” (the exchange, spot, or deferred of “property”) the intent is either charity, or commerce (“both” is inadmissible). If charity, no premium or discount on the principal, by prior agreement, is permissible. If commerce, all capital must share in the risk of the basic transaction (from which profit is expected), to be eligible for a lawful share in the return.

Thus riba is forbidden not because it is “an increase in capital without any services being provided”; it is forbidden because it is an increase in capital, despite the fact that the capital has been shielded completely from the risk of the fundamental venture. In other words, it isn’t that “something for nothing ain’t right”; rather, it is a case, if you will, of “no risk, no gain”!