Date of Award


Document Type


Degree Name

Master of Science



First Advisor

Jack Kirk

Second Advisor

Clark Compton

Third Advisor

Miriam King-Watts


This project investigates the possibility of the movement and proposals for establishing interest-free banking within the systems presently existing in the Muslim countries . which range from free enterprise in the western sense to socialist attempts. .

This project takes as precepts the Islamic thought in economics; it does not occupy itself with their legal and ideological justification but rather it goes on to investigate their economic significance and implications . In other words , the Islamic economy is given by assumption in this project . Its purpose is to show how this economy works and how its major variables are determined, such variables as investment , savings , consumption . It focuses on the effects of such variables as are generated by the Islamic injunctions themselves.

Before any economic analysis of the interest-free economy of Islam can be undertaken, the tremendous difference of thought among the radical and moderate thinkers is worth brief mention. The dispute is focused upon two points: whether there is any difference between consumption and production loans, and whether the rate of interest is to be considered or not. These two points are in reality merely the reflections of basic questions . Shall Muslims accept the status quo (i.e •• banking with interest) which exists in Muslim countries today with some few changes, or is this status quo as a whole , un-Islamic . requiring replacement by an Islamic system?

Io the Islamic literature, one can hardly find any distinction between hoarding and saving . Both are considered as the same, and the literature does not make any distinction between whether the income saved is measured in money units and is concealed under the ground or in the bank's vault as long as it is not put into the production process itself . The mere act of saving and depositing in a bank is an economically-negative action; therefore, it should be penalized rather than rewarded, and this is actually the case in Islam. The real productive act, from economic point of view, is the introduction of these savings into the production process in terms of capital, land or labor, and this act should have its reward, and so it is in Islam . This latter act is known as Mudarabah.

The abolition of interest and the establishment of Mudaraan banks will not in any way decrease the propensity to save because savings are a function of income , and earnings making interest only a minor motive for saving. In the absence of interest, the possibility of making profits on the basis of participation with mudarabah banks or by buying government- owned industrial shares will serve the same purpose. Further more , the major portion of savings in modern industrial countries comes from institutional sources , irrespective of interest rate and not from individua ls . Above all, there will not be any very great need for liquid assets in an Islamic economy both because gambling houses , casinos and other luxurious unlawful things which create its demand will be prohibited and because of the general satisfaction and peace of mind people will experience as a result of the Islamic reforms.

This discusses Chapter project consists of seven chapters. Chapter one Islam and economics. It deals with its methodology. two discusses Islam and other economic systems . It introduces the reader to the Islamic, capitalist, communist, and socialist economic systems. Chapter three discusses in detail the Islam economic development, and its policy implications . Chapter four introduces Riha and its transactions . It discusses Zakat Islam as an alternative . Chapter six Chapter five discusses Islamic discusses banking in banking in Muslim countries . And Chapter seven is a summary and conclusions .

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Creative Commons Attribution-NonCommercial 4.0 International License
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