Islamic banking and Friedman's rule

The dispute over the legitimacy of interest has reemerged with the rejuvenation of Islamic scholarship. A zero interest rate can be attained by either imposing a zero price ceiling in the credit market or shaping monetary policy to achieve the goal through the market. Friedman's Rule implies that the second policy can achieve a zero interest rate without seriously distorting the market. Muslims debate whether the Qur'an declares a total ban on interest due to a dispute over the meaning of riba . The West also has a history of anti-interest sentiment that dates back to Aristotle. Arguments in favor of interest are based on efficiency and preventing distortions in the credit market. Iran and Pakistan established interest-free Islamic banking systems in the late 1970s. It is too early to assess the performance of each, but disparate opinions on both have emerged. Many questions about the viability of Islamic banking remain and will only be answered by time and more research.