Reorganization of Islamic banking: a new proposal

Because of their involvement with interest (riba), Islamic scholars reject traditional banking. What is preferred instead is profit-sharing banking organized on the basis of two-tier mudaraba (trust financing). Islamic economists consider it unjust to leave seigniorage in the hands of private banks. It is believed by financial experts that seigniorage should be transferred to society through the financing of welfare projects. A dual-banking scheme might be utilized to accomplish the task of seigniorage transfer. The major role of banks is highlighted in sections on interest-free banking and on dual banking. Included are justifications and a discussion of the socioeconomic implications of bank behavior.