Morality and Justice in Islamic Economics and Finance
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Morality and Justice in Islamic Economics and Finance

Muhammad Umer Chapra

Mankind is faced with a number of serious problems that demand an effective solution. The prevalence of injustice and the frequency of financial crises are two of the most serious of these problems. Consisting of an in-depth introduction along with a selection of eight of Muhammad Umer Chapra's essays – four on Islamic economics and four on Islamic finance – this timely book raises the question of what can be done to not only minimize the frequency and severity of the financial crises, but also make the financial system more equitable.
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Chapter 5: The case against interest: is it compelling?

Muhammad Umer Chapra


Four of the world’s major religions (Judaism, Christianity, Hinduism, and Islam), having a following of more than two-thirds of the world’s population, have prohibited interest. In sharp contrast with this prohibition, the entire international financial system is now based on interest and has been so for more than 200 years. However, protests have been, and continue to be, made against interest. These protests have been particularly prominent in the Muslim world, where an effort is under way to replace the interest-based system of financial intermediation with the profit-and-loss-sharing (PLS) system. The introduction of a new model of financial intermediation based on PLS is not an easy task. The difficulties involved in the changeover justifiably raise the question of why should anyone try to replace the conventional system, which has been in existence for such a long time and has by now become highly sophisticated. Is the case against interest so compelling that a change needs to be considered seriously? One reason for the change is the imperative of abiding by a religious edict. This reason, though of prime importance to committed believers in Islam and other religions, may not have any appeal for those who are not so highly committed. It is, therefore, necessary to see whether the effort to remove interest from the financial system has any economic rationale.

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