The case against interest: Is it compelling?

Chapra, M. Umer

doi:10.1002/tie.20138

Cited by 65 publications

(45 citation statements)

References 10 publications

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“…Moreover, Chapra ( 2007 ) argues that The PLS system helps ensure greater discipline by making the bankers more careful in lending and the depositors more vigilant about the health of their banks and therefore will further help by not allowing the debt to exceed the growth of the real economy. The introduction of such a discipline carries the potential of helping realize not only greater stability, but also greater effi ciency and equity in the fi nancial system (Chapra 2007 ).…”

Section: Islamic Financial Systemmentioning

confidence: 99%

“…The introduction of such a discipline carries the potential of helping realize not only greater stability, but also greater effi ciency and equity in the fi nancial system (Chapra 2007 ). This is another advantage of PLS contracts, which resolves the externalities arising from interconnectedness and misaligned incentives of SIIs.…”

Section: Islamic Financial Systemmentioning

confidence: 99%

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Islamic Finance and Macroprudential Policy: The Case of Iranian Banking System

Hadian

2016

Macroprudential Regulation and Policy for the Islamic Financial Industry

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In response to the build-up of systemic risks and widespread fi nancial vulnerabilities, mainstream policymakers in many countries have adopted macroprudential regulations to mitigate systemic risks in the fi nancial sector as a whole. Islamic fi nance, on the other hand, has its own unique features promising stable fi nancial markets. The experience, however, has shown divergence between the ideal and practiced version of Islamic fi nance, where the majority of Islamic fi nancial contracts are highly similar to those of the conventional fi nancial system. In other words, the proportion of preferred contracts of Islamic fi nance, the PLS modes of fi nance, is small. It has been argued that this exposes the Islamic fi nancial system to systemic risks like the conventional system. Therefore, in the long-run, Islamic fi nancial authority should make effort to realize a genuine version of Islamic fi nance by promoting PLS and equity-based fi nance since it is inherently a self-stabilizing instrument of Islamic fi nance, which eliminates the sources of systemic risks in the fi nancial sector. In the short-run, nevertheless, the Islamic fi nancial system should be subjected to macroprudential regulations, but those instruments and tools that are primarily permissible in sharia, and then compatible with countries' circumstances, should be adopted. In the case of Iran, the analysis shows an urgent need for macroprudential regulations in Iranian banking system.

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Section: Islamic Financial Systemmentioning

confidence: 99%

Section: Islamic Financial Systemmentioning

confidence: 99%

Islamic Finance and Macroprudential Policy: The Case of Iranian Banking System

Hadian

2016

Macroprudential Regulation and Policy for the Islamic Financial Industry

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“…Chapra (, ) states that the interest‐based system has always been inferior to risk‐sharing architectures in terms of equity and social justice. Conversely, it is sometimes claimed that the opposite is true with respect to efficiency.…”

Section: Islamic Finance: Implications In the Context Of Gfcmentioning

confidence: 99%

“…The primary objective of these contracts is to ensure equitable distribution of risks associated with productive projects (real exchanges) through direct equity positions. Chapra (2007Chapra ( , 2008 states that the interest-based system has always been inferior to risk-sharing architectures 14 in terms of equity and social justice. Conversely, it is sometimes claimed that the opposite is true with respect to efficiency.…”

Section: Islamic Finance: Implications In the Context Of Gfcmentioning

confidence: 99%

The Underlying Cause of the Global Financial Crisis: An Islamic Perspective

Ejaz

Khan

2014

J of App Econs and Policy

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This article highlights that the primary architecture of the conventional financial system induces financial crises as it does not legally "tie the knot" between nominal and real transactions. This legal binding would require replacing interest-based mechanisms with an arrangement where nominal transactions are backed up by real transactions and a ban on securitisation of nominal assets that is based on the principles of risk transferring rather than risk sharing. The argument underlying our contention is that the extent of the negative impact of any crisis would be proportional to the gap between the nominal and real economy, and the mechanisms governing the distribution of risk. That is why, as advocated by proponents of Islamic Finance, the Islamic financial sector showed resilience during the global financial crisis (GFC). There is however no serious academic effort that formally presents the case of Islamic Finance. This article intends to fill this gap by taking stock of the literature on GFC and relates the discussion to the financial architecture proposed in Islamic finance.

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“…It also requires the creditor to bear the risk of default by prohibiting the sale of debt, thereby ensuring that he evaluates the risk more carefully. Chapra (2007) highlighting the benefits of asset backed financing by Islamic banks stated that asset-based debt should further help by not allowing the debt to exceed the growth of the real economy. The introduction of such a discipline carries the potential of helping realize not only greater stability, but also greater efficiency and equity in the financial system.…”

Section: Introductionmentioning

confidence: 99%