An Islamic critique of rival economic systems’ theories of interest

Purpose - This paper aims to contribute an Islamic critique of various competing economic system’s theories of interest, which have evolved within the distinct ideological frameworks of distinct rival economic systems and religions from the point of view of discovering potential effective Islamic economic solutions of the interest-driven modern economic, financial and banking and debt crises and the related problems of inflation, extreme, wealth inequalities and extreme poverty. Design/methodology/approach - This historical research paper portrays the chronological evolution of competing narratives and theories of interest in realms of religions, philosophies and rival economic systems for contributing their comparative review and critique from an Islamic point of view in light of the pertinent literature of multidisciplinary history of religions, philosophies and economic thought. It develops an Islamic critique of theories of interest in light of interactions among history of religious thought on interest, history of economic thought on interest and economic theories of interest and the interest-driven economic crises for highlighting potential Islamic interest-free solutions of the modern economic crises in the framework of the Islamic political economy. In light of an Islamic critique of various competing theories of interest, the paper presents pertinent economic policy recommendations for the governments of the countries of the contemporary Muslim world. Findings - The interest-free Islamic economic, as well as banking theories and models, offer the potential practical exploitation-free and injustice-free humanitarian solutions of the contemporary persisting macroeconomic crises (national, regional and global economic crises, financial crises, debt crises and banking crisis). Current Islamic discourses on interest and interest-free Islamic banking have effectively promoted the popularity and growth of global Islamic banking industry in the Muslim world in the 21st century. Practical implications - Keeping in view a general universal consensus of the Islamic jurists on the elimination of interest of all types from the economy, it is recommended for the Governments of the Muslim countries to implement a consensus-based Islamic banking model, which uses only the Islamic juristic consensus-based Islamic modes of banking and finance – Musharikah, Mudharabah and Al-Qardh Al-Hassan (interest-free loan) – for precluding the possibilities of emergence of controversies about the prospectiveRiba-free Islamic economic and banking system. Litmus test of the practical success of the interest-free Islamic universal economic and banking system is the successful elimination of all forms ofRiba(interest) and all possibilities of its involvement in extractive and exploitative activities in letter and spirit. Originality/value - This research paper contributes a comprehensive logical and objective critique of various competing prominent theories of interest from an Islamic economic point of view and highlights their pertinent practical macroeconomic problems-cum-consequences as well as the potential Islamic macroeconomic policy responses in the form of interest-free Islamic banking/monetary/fiscal policies.