Title: Feasibility of the interest-free economic system

Authors: Jamal Abu-Rashed, Abdelhafid Belarbi

Addresses: Williams College of Business, Xavier University, 3800 Victory Parkway, Cincinnati, OH 45244, USA. ' Faculty of Economics and Business, Al-Zaytoonah University of Jordan, P.O. Box 130, Amman 11733, Jordan

Abstract: Today|s advancement of research in the field of contract theory along with debt vs. equity financing have set a new framework for treating the issue of interest charges. Most recently, Islamic financial institutions are increasing rapidly across countries of the Middle-East and North Africa. The Gulf States have created a new platform for sharia-compliant hedge funds that attracted names such as BlackRock and other key global mutual funds. Major US and European law firms and financial institutions have been reacting positively and promptly to take advantage of the liquidity and other investment opportunities in the region. The British government is also edging towards issuing a short-term sovereign sukuk (sharia-compliance bond). France along with other European countries have begun its own strategy aimed at Islamic investors. This paper presents a historical overview of the controversial issue of charging a fixed interest and discusses the feasibility of the new free-interest economic system.

Keywords: zero equilibrium interest rate; free interest economy; sukuk; sharia-compliance bond; debt vs. equity financing; contract theory; Islamic finance; mudarabah; profit–loss sharing; morabahah; mark-up; musharakah; partnership.

DOI: 10.1504/IJEBR.2011.040024

International Journal of Economics and Business Research, 2011 Vol.3 No.3, pp.336 - 355

Published online: 22 Apr 2015 *

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