Joseph Schumpeter famously claimed that there is a ‘great gap’ of 500 years in the history of economic thought, from the Greeks to Thomas Aquinas.  In this article, Professor Abdul Azim Islahi argues that this idea neglects some very serious scholarship which took place during those years within the Islamic world.

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photo credit: gfpeck via Flickr cc

Now that the conventional financial sector is in a bit of a mess, people are looking for alternatives. One solution that is enjoying popularity is the age-old ideal of interest-free banking. Two questions present themselves: 1. are the ideas behind interest-free banking sound, and 2. does it work? […]

photo credit: Masrur Ashraf via Flickr cc

The rationale for developing Islamic Financial Institutions (IFIs) parallel to Conventional Financial Institutions (CFIs) emanates from the Muslim orthodox interpretation that equates the Qur’anic prohibition of riba with all types of interest. Since the major business of CFIs involves dealing in interest, the orthodox interpretation concluded that the business of CFIs was prohibited in Islam. That led to the need for an alternative basis for banking business within the Islamic framework.

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In light of the ongoing financial crisis, and in particular the crisis surrounding sovereign debt, the question arises: “Is there an alternative sustainable model of debt-financing and debt repayment that could be the way forward?”. Professor Mohamed Ariff proposes an alternative method of debt-issuing and repayment that (i) prevents unlimited borrowings to build up beyond capacity to pay back, (ii) enables risk sharing in debt-based funding, (iii) provides debt forgiveness in extreme cases while (iv) makes the interest-on-interest practice illegal.

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