Issues in Islamic Banking: Selected Papers

Introduces the idea of a banking operation based on the Islamic principles of partnership and profit-sharing, free of interest.

ISSUES IN ISLAMIC BANKING introduces the idea of a banking operation based on the Islamic principles of partnership and profit-sharing, free of interest. It demonstrates how the creation of high powered money as well as of bank money in the Islamic system can be firmly linked with genuine possibilities of production, minimising the chances of inflation. Comparing and contrasting the Islamic system with the interest-based banking system it shows the superiority of the former on grounds of distributive justice, allocative efficiency, stability and growth. It argues that the malaise in the existing system of international finance is rooted in the institution of interest whose elimination should be the first step towards a new and healthy monetary order. On the economics of profit-sharing the author shows how the ratio of profit-sharing between suppliers of capital and its users can be determined rationally by the forces of supply and demand. The book surveys recent contributions to the theory of money, banking and monetary policy in an Islamic economy, critically examining the state of the art on such issues as demand for money, creation of credit, 100 percent reserves and indexation. It also evaluates some recent policy recommendations on how to eliminate interest from the economy of Pakistan, discussing such issues as Murabaha and investment auctioning.

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