Comments on Kauthar al-Abji's 'The Study of Investment Feasibility in the Light of Islamic Jurisprudence'
Paper presented to the International Seminar on Economic Development and Planning in an Islamic Economy organised by I.I.I.E. at Islamabad in July 1986. Individual preferences and their relationship with the social welfare function should expose certain political and legal requirements. The criteria presented as Islamic boils down to the net social benefit criterion (which has been a common economic concept) and a ranking criterion (which requires special enforcement tools). The choice ofthe proper discount rate is similar in an Islamic environment but is difficult in our present environment. For Muslim economists. Based on primary sources. Documented.
Comments on M. Arzwar’s ‘Macro’-economic Planning Models for Islamic Economy
Paper presented to the International Seminar on Fiscal Policy and Development Planning organised by I.I.I.E. at Islamabad in July 1986. Dr. Anwar’s paper does not treat zakah as a general tax. It unnecessarily distinguishes between zakah and ‘ushr. The concept of ‘Islamic Profit’ is also unnecessary. The definition of profit is not defensible. Buying and selling of muddraba contracts will give rise to many juristic questions. Gives an alternative formulation. Mathematical. For economists only. Undocumented.
Mudaraba: Principles and Practical Applications
Discusses the law of mudaraba and various questions relating to its operation: prerequisites, scope, pooling of funds, continuity, settlement of profits. The last part discusses its application in banks and investment companies. Recommends greater cooperation between finance companies and Islamic banks so that a secondary market emerges through which banks may match supply of short-maturity funds with demand for long-maturity funds. Based on primary and secondary sources. Cites the four schools of fiqh. A comprehensive statement of the law on mudaraba. Meant for economsts and bankers. Documented.
Mudaraba: Principles and Practical Applications
Paper Presented to the Seminar on Islamic Financing Techniques, Organised by IIIE
A monetary and financial structure for an interest-free economy: institutions, mechanism and policy
In this paper the author proceeds to identify the main features of the present Western-type financial and monetary structure and compares it with the alternative structure that might exist in an interest-free Islamic economy. What the author proposes is to replace this system with what he calls as productivity based financial-monetary structure. The organizational structure of his alternative system is essentially the same as the existing systems in the U.S. and other Western developed countries: there exist a central bank, a number of commercial banks and the public sector that uses the facilities of the monetary system. However, what is different is how the central and commercial banks and the treasury operate in an interest-free economy. Central bank creates fiat money but not against government interest-bearing securities. It anchors the growth of money supply to the growth rate of the economy and if full employment prevails the rate of inflation will be zero. In his proposed system there is no fractional reserve and the central bank issues certificates as liabilities and holds loan accounts and deposits in member banks and some of its assets are held in the form of cash. The member banks hold assets in the form of cash, equity shares, profit-sharing and leasing accounts while their liabilities consist of non-interest-bearing demand deposits and certificates issued to their customers. The treasury is assigned the role of collecting and distributing the proceeds from Zakah and management of society’s social resources. Finally, in this system there is a multiplicity of financial instruments such as Central Deposits or Lending Certificates, Profit-sharing Certificates, Leasing Certificates, etc. What is important is that none of the financial instruments com- mands any interest; instead what propels the system is that member banks are basically investment banks which participate in different investment projects and make their profits or losses by taking equity position in real investment projects. Thus the present indirect link between the financial market and the goods market established by the intermediation of the financial institutions is replaced by direct participation of banks in productive investment projects.
The Relative efficiency of interest-free monetary economics the fiat money case
The purpose of this paper is to challenge the traditional institu- tional arrangement of paying interest on money as an exchange. Both cases of government and privately-produced fiat money are considered. Moreover, private borrowing and financial intermediation are given analytical attention. The paper introduces a set of fiat means of exchange into an economy and a few related questions. First, how much money should an individual use in order to spend his income? Second, how much should the government produce in order to provide for the optimal use of money, and how should it distribute its money? Third, given the size of government money, how much would a private producer supply of his own money under conditions of imperfect information? Fourth, how do private concerns and financial intermediaries behave within our theoretical framework? The fifth and last question is how much should the government produce of its own money, how should it distribute it among different individuals, and what regulations should it impose on the banking system and financial intermediaries, in order to provide for the optimal supply of monetary services? The conclusions of this paper are that economies with no interest payments on borrowing and no bank multiple creation of money are most optimal between the different institutional arrangements con- sidered. This means that it is most efficient if the government initially provides its own money free, lends it free, and imposes 100% reserve ratio on banks.