What is Wrong with Islamic Economics?

What is Wrong with Islamic Economics?

Analysing the Present State and Future Agenda

Studies in Islamic Finance, Accounting and Governance series

Muhammad Akram Khan

What is Wrong with Islamic Economics? takes an objective look at the state of the art in Islamic economics and finance. It analyses reasons for perceived stagnation and also suggests a way forward.

Chapter 8: Elimination of interest: from divine prohibition to human interpretation

Muhammad Akram Khan

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation, islamic economics and finance, money and banking

Extract

The divine texts of the three main monotheistic religions, namely Judaism, Christianity and Islam, prohibit interest on loans. However, the way the religious scholars of all three religions have interpreted the prohibition did not succeed in eliminating interest on loans. Human history is thus a history of failure to implement the human interpretation of divine prohibition of interest on loans. Throughout history, there has been a temptation among the religious elite, reformers and social workers to devise some legal mechanism for abolishing interest. Some of them launched a relentless struggle to achieve this objective. Unfortunately, almost always, legal solutions of the problem led to two outcomes. First, there developed a black market for interest-bearing credit, pushing the rates of interest even higher and thus defeating the very purpose for which interest was banned by the law. Second, people were induced to devise series of subterfuges to camouflage interest so as to bypass the legal sanctions. Evidence of this latter outcome can be seen in the form of a long list of subterfuges which Islamic financial institutions have devised in the present time. At the beginning the religious leaders of Judaism and Christianity tried to harness political support to implement the ban on interest.

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information