Islamic banks and a theory of optimal profit sharing

Islam promotes efforts for material gain, but these efforts must be made on Islamic grounds. Banks are crucial elements in the modern economy, for they bridge savers and investors. On the positive side, banking is dynamic and vitalizing. On the negative side, banking operations involve the exploitative institution of interest. Interest is unjust toward both borrowers and the lenders. A borrower is hurt if his earnings are insufficient to cover interest payments, while a lender is slighted if the borrower's earnings are great relative to the interest paid. Since the Qur'an permits trade but bans usury, Islamic banks require profit-and-loss sharing rather than interest payments. The types of deposits in Islamic banks include corporate stocks and demand deposits. Among the use of bank funds are for mudaraba and indexation. A basic mathematical model of optimal profit sharing exists. The ethical values of Islam should be expressed in mathematical terms in the development of more