The Islamic economic system: a theoretical and emperical analysis of money and banking in the Islamic economic framework (Ph.D. Dissertation)

In order to conform with Islamic Law, Muslim economists and jurists have sought to revive medieval Muslim banking and financial practices through Islamic banking and investment institutions. These institutions utilize an Islamic profit-and-loss system (P.L.S.). This research evaluates the prospects of a banking system based entirely on the P.L.S. principle. The analysis shows that the same market forces apply for a profit-sharing rate instead of an interest rate, and that despite the change in financial institutions and financial instruments, the forces of supply and demand for loanable funds will generate a market exchange signal. The results suggest that there is an active market in Islamic banking for a resourceful and efficient savings system, and that non-market regulation of profit-sharing rates would reduce economic efficiency.