The impact ofMusharakahfinancing on the monetary policy in the Islamic economy

Purpose - This paper aims to contribute to formulating the methodological framework for a paradigm of Islamic economics, using the development of the conventional economics, theoretical and mathematical methods. Design/methodology/approach - The study based on the inductive and mathematical methods to contribute to economic theory within the methodological framework for Islamic Economics, by using the return rate ofMusharakahrather than the interest rate in influence the economic activity and monetary policy. Findings - Via replacement, the concept of the interest rate by the return rates ofMusharakah. It concludes that the central bank can control the monetary policy, economic activity and the efficient allocation of resources by using the return rates ofMusharakahthrough the framework of Islamic economy. Practical/implications - The study is a contribution to formulate the methodological framework for a paradigm of Islamic economics, where it investigates the impact of return rates ofMusharakahon the money market and monetary policy, by the mathematical methods used in the conventional economy. Also, the study illustrates the importance of further studies that examine the methodological framework for Islamic Economics. Originality/value - The study aims to contribute to formulating the Islamic economic theory, through the return rate ofMusharakahfinancing instead of the interest rate, and its effectiveness of the monetary policy. As well as reformulating the concepts of the investment function, the present value and the marginal efficiency rate of investment according to the Islamic economy approach.