Reorganization of Islamic Banking
Introduction Traditional banking is rejected by Islamic scholars mainly because of interest. Interest-bearing banking is supposedly being replaced by profit-sharing banking organized on the basis of two-tier mudambu. Seigniorage (difference between face value and intrinsic value of money) resulting...
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| Format: | article |
| Language: | EN |
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International Institute of Islamic Thought
1987
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| Online Access: | https://doaj.org/article/6702fde20ee14b4f87fddd8d3c1a8fa2 |
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| Summary: | Introduction
Traditional banking is rejected by Islamic scholars mainly because of interest.
Interest-bearing banking is supposedly being replaced by profit-sharing
banking organized on the basis of two-tier mudambu. Seigniorage (difference
between face value and intrinsic value of money) resulting from expansion
in demand deposits will continue accruing to the interest-free banking system.
Islamic economists consider it unjust to leave the seigniorage in the hands
of private banks.
Money experts feel strongly that the seigniorage should be transfered to
society by financing welfare projects. A dual banking scheme is proposed
here that will accomplish this task and contribute towards achievement of some
other socio-economic goals of an Islamic society.
The major role of banlung for an economy is presented in section I. Interestfree
banlung is outlined in section II. Dual banlung scheme, with its justification
and socio-economic implications, is proposed in the final section.
I. General Role of Banking
Economists classify all economic agents into households, business firms,
and government. An economic dgent must operate within its budget constraint.
The budget of an economic unit could be balanced, in deficit, or in
surplus for a given period depending on, respectively, whether its income
matches its expenditures, income exceeds its expenditures, or expenditures
exceed its income. Savings from the surplus economic units (SEU) are transferred
to the deficit economic units (DEU)in order to satisfy current investment
and consumption needs of DEUs and increase incomes of SEUs for the ensuing ...
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