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The Interest-free Financial System

In: Islamic Finance: Theory and Practice

Author

Listed:
  • Paul S. Mills

    (HM Treasury)

  • John R. Presley

    (University of Loughborough
    The Saudi British Bank)

Abstract

The devout Muslim with disposable wealth has always faced a dilemma. Qu’ranic opposition to interest is clear, but so too is the condemnation of hoarding and wasteful consumption. The impasse is that of having wealth to save, but few legitimate financial instruments with which to do so. Suspicion of conventional banks, and a dearth of alternative savings outlets, resulted in hoards estimated to be of the order of $80 billion in Muslim countries in the early 1980s (Wöhlers-Scharf, 1983, p. 76). The problem is to devise financial intermediaries that operate without resorting to interest but which still yield a return to depositors, for: if a banking structure could be evolved in which the return for the use of financial resources would fluctuate according to actual profits made from such use, the resulting system would be in conformity with Islamic rules and guidelines. (M. S. Khan and Mirakhor, 1987a, p. x) The achievement of Islamic economists and bankers has been the conception and implementation of such a structure.

Suggested Citation

  • Paul S. Mills & John R. Presley, 1999. "The Interest-free Financial System," Palgrave Macmillan Books, in: Islamic Finance: Theory and Practice, chapter 3, pages 15-33, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-28847-8_3
    DOI: 10.1057/9780230288478_3
    as

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