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Negative Interest Rate and Mudarabah Investment Deposits Rate: A Short Essay

Md Akther Uddin

MPRA Paper from University Library of Munich, Germany

Abstract: Negative interest rate is quite a new phenomenon and many economists are quite puzzled by this new development after the global financial crisis of 2008/2009 and warned about its negative consequences. Whether negative interest rate can be considered as a Riba, literally interest rate, in Islamic finance is not settled yet. According to the classical text, the logic behind prohibition of interest rate, Riba, is actually inherent injustice; it may be to borrower or lender. There is no ruling or fatwa regarding negative interest rate. However, by following the analogy of injustice in Riba, we can argue that negative interest rate should be equated wtih Riba. One of the most controversial issues in current Islamic banking practice is that the return on Mudarabah investment deposits and interest rate on savings accounts are quite identical if not the same. Three key reasons for this paradox are briefly explained and number of measures has been recommended which might help delinking interest rate from profit rate.

Keywords: negative interest rate; Riba; Islamic finance; mudarabah investment deposits (search for similar items in EconPapers)
JEL-codes: E4 E5 P0 P00 (search for similar items in EconPapers)
Date: 2016-04-01
New Economics Papers: this item is included in nep-hme and nep-mac
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