Financial Mathematics: Interest and Usury

My experience as a student in the Bachelor of Statistics department who took a financial mathematics class has opened up my awareness and insight into how the modern financial system works.

Simple Interest vs Compound Interest#

Interest is divided into 2 types, which is single interest and compound interest where single interest is only calculated from the initial principal on a fixed basis, while compound interest is calculated from the initial principal and previous interest so that the accumulated interest grows exponentially.

Banks and financial institutions almost all apply compound interest to loans and installments. This is a problem because of the convenience if we take installments with a long tenor because in the long term it will provide great benefits to financial institutions, but it is actually burdensome for customers.

Student Dilemma#

Many of my friends aspire to work in banks because of the high salaries, prestigious positions, career prospects, and various facilities, such as interest relief given as an employee there. However, after studying the financial mathematics class, this is actually questioned about how the ethical and moral principles are implemented in the job?. Because in terms of usury calculations, it can harm the lower and middle classes.

This article is written as a reflection and consideration for students who wish to continue from the education phase to the career level phase.