The Inhibition of Usury (Riba An-Nasi'ah) and the Economic Underdevelopment of the Muslim World

Murizah Osman Salleh, Aziz Jaafar () and M. Shahid Ebrahim ()
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Murizah Osman Salleh: Bank Negera Malaysia

No 11002, Working Papers from Bangor Business School, Prifysgol Bangor University (Cymru / Wales)

Abstract: Premised on the finance-growth-poverty nexus, economic advancement of Muslim countries must be underpinned by a robust financial system. Nonetheless, this measure requires foremost demystifying the riba enigma. In this paper we develop a rational expectations model to study the riba injunction and justify its inhibition to the: (i) potential of expropriating wealth from either borrower or lender, which leads to the onset of non-sustainable equilibrium in the long-run; (ii) susceptibility to financial fragility; and (iii) financial exclusion of the poor. We then present our perspectives on structuring financial facilities to mitigate the above issues, its ratiocination and the deeper meaning of this centuries old injunction. Our results differ from those espoused by classical Shari?ah scholars and political Islamic groups.

Keywords: interest; expropriation of wealth; financial fragility; financial exclusion; hybrid equity contracts; property rights. (search for similar items in EconPapers)
JEL-codes: G20 G32 O16 Z12 (search for similar items in EconPapers)
Date: 2011-10
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Citations: View citations in EconPapers (3)

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