Conclusions

Paul S. Mills and John R. Presley
Additional contact information
Paul S. Mills: HM Treasury
John R. Presley: University of Loughborough

Chapter 9 in Islamic Finance: Theory and Practice, 1999, pp 114-120 from Palgrave Macmillan

Abstract: Abstract Given the novelty and radical nature of the concept, interest-free financial theory and practice have developed surprisingly far. Interest-free banks have proved to be durable institutions enjoying substantial deposit growth. Pakistan and Iran operate a technically non-interest financial sector. Theoretically, profit-share, mutual fund and rental contracts can perform many of the functions of debt finance and their exclusive use offers many potential benefits. These include the more efficient allocation of loanable funds; a banking sector that can more readily supply long-term risk capital; a greater emphasis on productive investment vis-à-vis consumption and speculation; and a stable and stabilizing financial sector.1 Interest-free theory has developed sufficiently to counter the allegations that the elimination of interest would significantly reduce savings propensities, that monetary policy would be impotent without an interest rate to influence and that such an economy would be rendered unworkable by moral hazard problems.

Keywords: Mutual Fund; Economic Freedom; Trade Credit; Islamic Bank; Moral Hazard Problem (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-28847-8_9

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DOI: 10.1057/9780230288478_9

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