Modelling Interest- Free Economy, A Study in Macro-Economics and Development

Abstract

In recent years there has been numerous Islamic publications in both
social and economic fields trying to establish their theoretical and empirical
basis according to Islamic principles Modelling Interest-Free Economy, A
Study in Macro-economics and Development by Dr. Muhammad Anwar is
one book which is a laudable study in economics, applying particularly the
mudaraba system to the macro-economic level. Although it is really valuable
study, I would like to express my opinions on the following points.
1) Regarding the technical points, it would have been useful for the reader
if the sources used as reference had been given as footnotes. It is difficult
to refer back to the sources.
2) “Muslim countries are reforming their financial systems in the light of
Islamic teachings. Islamic financial institutions conduct their operations
in ways that steer clear of interest and conform to the Sharia, the Islamic
code of law and ethics (p. 7).” In such studies, it would be useful to
draw a clear line between trade activities and partnerships and the
banking system. Since Islamic countries and Muslim scholars are just
now trying to develop a new banking system according to Islamic principles,
we should be strictly careful when using the term “Islamic Banks.”
In contrast with some Muslim scholars, for similar reasons we should
also be careful when putting forward the mudaraba system as the basis
for a banking or economic system. Instead of calling these institutions
“Islamic” it would be more proper to use such terms as “Interest-Free
Commercial Institutions”, “Interest-Free Financial Institutions”, “Interest-
Free Credit Institutions (Corporations) ,” etc.
3) The mudaraba contract as a form of partnership is directly related to
trading activities. The involvement of the banking system in trade activities
by establishing partnerships with certain firms through mudaraba
contracts can severely distort the free competition in the market system
which is encouraged by the Prophet (SAAS). Banks are institutions in
which huge amounts of financial resources are accumulated. As the banks
enter the market to make commercial transactions, even though in the
forms of mudaraba, musharaka or murabaha, this involvement will likely ...