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The Inhibition of Usury (Riba An-Nasi'ah) and the Economic Underdevelopment of the Muslim World

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Author Info

  • Murizah Osman Salleh

    (Bank Negera Malaysia)

  • Aziz Jaafar

    (Bangor Business School)

  • M. Shahid Ebrahim

    ()
    (Bangor Business School)

Abstract

Premised on the finance-growth-poverty nexus, economic advancement of Muslim countries must be underpinned by a robust financial system. Nonetheless, this measure requires foremost demystifying the riba enigma. In this paper we develop a rational expectations model to study the riba injunction and justify its inhibition to the: (i) potential of expropriating wealth from either borrower or lender, which leads to the onset of non-sustainable equilibrium in the long-run; (ii) susceptibility to financial fragility; and (iii) financial exclusion of the poor. We then present our perspectives on structuring financial facilities to mitigate the above issues, its ratiocination and the deeper meaning of this centuries old injunction. Our results differ from those espoused by classical Shari?ah scholars and political Islamic groups.

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Bibliographic Info

Paper provided by Bangor Business School, Prifysgol Bangor University (Cymru / Wales) in its series Working Papers with number 11002.

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Date of creation: Oct 2011
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Handle: RePEc:bng:wpaper:11002

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Keywords: interest; expropriation of wealth; financial fragility; financial exclusion; hybrid equity contracts; property rights.;

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References

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Cited by:
  1. M. Shahid Ebrahim & Seema Makhdoomi & Mustapha Sheikh, 2012. "The Political Economy and the Perennial Underdevelopment of the Muslim World," Working Papers 12011, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  2. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2012. "Can an interest-free credit facility be more efficient than a usurious payday loan?," Working Papers 12008, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).

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