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Conclusions

In: Islamic Finance: Theory and Practice

Author

Listed:
  • Paul S. Mills

    (HM Treasury)

  • John R. Presley

    (University of Loughborough
    The Saudi British Bank)

Abstract

Given the novelty and radical nature of the concept, interest-free financial theory and practice have developed surprisingly far. Interest-free banks have proved to be durable institutions enjoying substantial deposit growth. Pakistan and Iran operate a technically non-interest financial sector. Theoretically, profit-share, mutual fund and rental contracts can perform many of the functions of debt finance and their exclusive use offers many potential benefits. These include the more efficient allocation of loanable funds; a banking sector that can more readily supply long-term risk capital; a greater emphasis on productive investment vis-à-vis consumption and speculation; and a stable and stabilizing financial sector.1 Interest-free theory has developed sufficiently to counter the allegations that the elimination of interest would significantly reduce savings propensities, that monetary policy would be impotent without an interest rate to influence and that such an economy would be rendered unworkable by moral hazard problems.

Suggested Citation

  • Paul S. Mills & John R. Presley, 1999. "Conclusions," Palgrave Macmillan Books, in: Islamic Finance: Theory and Practice, chapter 9, pages 114-120, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-28847-8_9
    DOI: 10.1057/9780230288478_9
    as

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