The Islamic interest-free banking system: some empirical evidence

Non-interest-based financial instruments and institutions are more efficient than interest-based ones. A case study of Tunisia illustrates the merits that an Islamic system might bear. The investigation used time-series analysis over 25 years to examine the relative stability and policy utility of the two divergent financial systems. The study concluded that, for the purpose of Tunisian intermediate policy targeting, an interest-free system is preferable to one with interest. The interest-free system makes such policy targeting useful while the other system does not. Therefore, policy makers should think seriously about Islamic economics because the study demonstrates that an Islamic economy is viable and beneficial for financial stability, policy usefulness, and economic efficiency. Perhaps the recent troubles in the international financial scene ought to inspire economists to look towards Islamization.