Munich Personal RePEc Archive

Islamic Finance: An Equitable and Efficient Option

Al-Jarhi, Mabid (2004): Islamic Finance: An Equitable and Efficient Option.

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Islamic finance starts from one basic concept that is to avoid trading directly present for future money. Finance is provided in the form of money in return for either equity or rights to share proportionately in future business profits. It is also provided in the form of goods and services delivered in return for commitment to repay their value at a future date. This is an obvious option in addition to the conventional practices of interest-based finance. This paper addresses itself to four questions: (1) Why all the fuss about the rate of interest? (2) Is Islamic finance, as an alternative to interest based debt finance viable and efficient? (3) What Islamic finance implies for the whole economy? (4) Given that Islamic finance is really viable, why it has not been adopted at a larger scale?

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