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Volume :17 Issue : 2 1989
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The Interest System and the Mechanisms of Growth and Efficiency in an Islamic Economy
Auther : Abdul-Hamid Mahboub
This paper adds to the debate about whether bank interest is considered ‘Riba’. A simplistic model of an economy is constructed where the profit and loss sharing system replaces the system of interest, and where the system of Zakat is in effect. Other requisites of the Islamic economy are assumed away in order to concentrate on the mechanisms generating from the above. The operation of the model shows the effect of abolishing interest and establishing Zakat on various factors. These include: monopoly and industry concentration, the trickling down of benefits of economic growth, economic stability, and the tendency toward a saving – investment balance at high level of employment. It is hoped that both sides of the debate on bank interest would benefit from this analysis in addition to considering the legal aspects of problem.