The anti-riba stance taken by the conservative Muslim communities all too often focus only at the “evil” banks. The narrative usually revolves on how the banks exploits the poor by charging a never-ending interest rate, and as such, is planting the seed either for personal economic misfortune or systemic economic crisis. I personally think this kind of narratives, while true, is still not comprehensive, because of several reasons:

• The really big debt are not personal, but on a corporate level. Therefore a narrative that compels Muslims to avoid living beyond their means will not systematically eliminate riba. Corporate debt will still happen, and they are driven by a very different incentive structure than the ones running the behaviour of consumer-lending. So the prevailing narrative leaves a gaping hole in its structural completeness.
• Economic misfortunes is not that common. Taking gross NPL as a proxy for economic misfortunes which hinders the servicing of debt, in normal times the value is somewhat below 10% or even below 2% as long as the banks choose to lend selectively. It might be a different story in crisis times. It can also be that the prevalence of interest-bearing loans in normal times is actually the seed for future crisis in a black swan-style event.

Yet another reason is the behaviors of debtors themselves. After watching Inside Indonesia’s Notorious Debt Collecting Industry: The Debtfathers, I can conclude a few things:

• Some debtor just take a loan without any idea how to repay it. Or they have a very bad financial management. Sometimes the loan is used to fund consumption, other times it’s for business capital.
• Debtors’ decision to give their asset, such as house, as collateral is voluntary. When the collateral is being taken away, they behave as if they are the victim. But it is their decision in the first place to put their house a collateral. The debt collectors are just enforcing the contract the debtors are agreeing to voluntarily in the first place.

Of course we are not denying that there are also predatory and criminal practice of debt collection. But in generally, the debtors are the ones that bring those misfortunes upon themselves by choosing to be involved in debt to finance their consumption or their business. This hints something about the debtors’ behavior.

Let’s run a thought experiment. Suppose that all riba financial institution are suddenly replaced overnight by, let’s say, “halal” banks, or Islamic financial institutions, or whatever. We have no more riba in the system, but will our system be robust?

I will just take one example. Think about consumer loan in the form of installment payments for consumer products for people that can’t pay cash upfront (electronics, auto-loan, house mortgage, etc). Some of the problems that used to exist in interest-bearing regimes of the past might still persist in the contemporary halal regime because those persisting problem is not actually riba problem, but trust problem. Abolishing riba institutions will not necessarily decrease NPL, as non-interest-bearing loan (e.g. installment payments) can also be delinquent, even at higher rate if no penalty is given to discourage such behaviour. That is incentive problem, not riba problem.

My take is that the narrative regarding riba should not be reductionist. Guts alone to reject the riba institutions is not enough, we need brains to lead to actual reforms. We need fine minds that are highly educated to lead the reform. We cannot continually rely on popular, yet misleading, unrealistic, utopian hope of “memajukan ekonomi umat” without solidifying a strong fundamental to make sure that our solution would not produce system-wide unintended consequence, lest we risk making the public skeptical of our offerings.