Islamic Banking and Finance

Islamic Banking and Finance

New Perspectives on Profit Sharing and Risk

Edited by Munawar Iqbal and David T. Llewellyn

Islamic Banking and Finance discusses Islamic financial theory and practice, and focuses on the opportunities offered by Islamic finance as an alternative method of financial intermediation. Key features of profit-sharing (as opposed to debt-based) contracts are highlighted, and the ways in which they can facilitate improved efficiency and stability of a financial system are explored.

Chapter 8: Islamic banking contracts as enforced in Iran

Ali Yasseri

Subjects: economics and finance, financial economics and regulation, islamic economics and finance, money and banking, social policy and sociology, migration


Ali Yasseri* 1. INTRODUCTION As from 21 March 1984, all Iranian banks drastically changed their methods of operation from interest-based to interest-free standards, in conformity with the Law for Usury (Interest)-Free Banking Operations, which had been passed six months earlier. This law, which had fundamentally altered banking operations from interest-based to interest-free practices, was not the only drastic transformation faced by the banking system of the country. Two major changes had also occurred a few years earlier: (1) on 7 June 1979, Iran had nationalized its entire banking and insurance systems, and (2) nationalization was accompanied, four months later, by the merger of 36 banks and 16 savings and loan associations into six commercial and three specialized banks, with thousands of branches scattered all over the country. In the past few years, one specialized bank was added to the list, while the Post-bank also received its charter from parliament and has been practising some form of banking functions in close collaboration with the country’s postal network. With some 14 600 branches, the government-owned banking system has about 155 000 employees, 14 per cent of whom have university education. Since Article 44 of the Iranian Constitution prohibits establishment of privatesector banks, the Iranian Central Bank in 1998 issued a licence to a private-sector non-bank credit institution to offer saving and investment services to the public and to undertake normal banking operations, except those related to current accounts. This step was taken in order to inject some form of competition into...

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