A macroeconomic model for interest-free economies: an integrative study of Western and Islamic systems (banking) (Ph.D. Dissertation)

Muslim economies have recently begun to move away from entirely interest based financial systems, which follow practices that the Qur'an prohibits. Islamic scholars support the re-organization of financial institutions to incorporate mudaraba , a system where financiers agree on a profit-sharing ratio in place of interest rates. Interest-free financial institutions are already operating among or have replaced traditional/Western institutions in several countries. This study adapts a representative Western macroeconomic model into an equivalent interest-free model by incorporating an interest-free financial system, which is then analyzed to determine effects of fiscal and monetary actions. Development prospects of the interest-free and interest-based financing systems are compared for LDCs in an inflationary environment. Profit-sharing ratios play a similar role in an interest-free economy that interest rates do in a Western economy, making it possible to manipulate the profit-sharin