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Negative Interest Rate and Mudarabah Investment Deposits Rate: A Short Essay

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  • Uddin, Md Akther

Abstract

Negative interest rate is quite a new phenomenon and many economists are quite puzzled by this new development after the global financial crisis of 2008/2009 and warned about its negative consequences. Whether negative interest rate can be considered as a Riba, literally interest rate, in Islamic finance is not settled yet. According to the classical text, the logic behind prohibition of interest rate, Riba, is actually inherent injustice; it may be to borrower or lender. There is no ruling or fatwa regarding negative interest rate. However, by following the analogy of injustice in Riba, we can argue that negative interest rate should be equated wtih Riba. One of the most controversial issues in current Islamic banking practice is that the return on Mudarabah investment deposits and interest rate on savings accounts are quite identical if not the same. Three key reasons for this paradox are briefly explained and number of measures has been recommended which might help delinking interest rate from profit rate.

Suggested Citation

  • Uddin, Md Akther, 2016. "Negative Interest Rate and Mudarabah Investment Deposits Rate: A Short Essay," MPRA Paper 72645, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72645
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    References listed on IDEAS

    as
    1. Frederic S. Mishkin, 2009. "Monetary Policy Strategy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262513374, December.
    2. Mr. Olivier J Blanchard & Mr. Giovanni Dell'Ariccia & Mr. Paolo Mauro, 2013. "Rethinking Macro Policy II: Getting Granular," IMF Staff Discussion Notes 2013/003, International Monetary Fund.
    3. Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
    4. Olivier J Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2013. "Rethinking Macro Policy II; Getting Granular," IMF Staff Discussion Notes 13/003, International Monetary Fund.
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    More about this item

    Keywords

    negative interest rate; Riba; Islamic finance; mudarabah investment deposits;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • P0 - Political Economy and Comparative Economic Systems - - General
    • P00 - Political Economy and Comparative Economic Systems - - General - - - General

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