Determination of Mark-Up Rate under Zero-Interest Financial System: A Microeconomic Approach

Shafi A. Khaled () and A.wahhab Khandker ()
Additional contact information
Shafi A. Khaled: Metropolitan State University, USA
A.wahhab Khandker: University of Wisconsin – La Crosse, USA

Islamic Economic Studies, 2017, vol. 25-2, 15-34

Abstract: Misunderstood and maligned, the determinants of mark-up (MU) rate under Murābaḥah financing deserve scrutiny of its structural formulation. Some suggest that MU rate is really interest rate. Is MU transaction pure trade? We analyze by considering the underlying market structure, central bank imposed minimum reserve requirement, deposit sum, a bank’s fixed and variable costs, etc. Perhaps for the first time, the capacity to charge ribā is traced to market imperfection. Banks with no Islamic credential are entering the market suggesting presence of positive economic profit. By promoting proper costing, accountability, efficiency and standardization of MU rate across industry become possible. Prediction and hypothesis testing become possible. Associated with this, we also explore how the deposit rate is determined. The transparency thus afforded should mitigate the contentious debate about MU financing as opposed to interest-based lending.

Keywords: Mark-up rate; Murābaḥah; ZIFS; Islamic banking. (search for similar items in EconPapers)
JEL-codes: G10 G11 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.irti.org/English/Research/Documents/IES/222.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:isecst:0166

Access Statistics for this article

Islamic Economic Studies is currently edited by Salman Syed Ali and Anis Ben Khedher

More articles in Islamic Economic Studies from The Islamic Research and Training Institute (IRTI) Contact information at EDIRC.
Bibliographic data for series maintained by IRTI Staff () and ().