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Riba, profit rate, Islamic rate, and market equilibrium

Muslim economists have suggested the profit rate to replace ribÉ in an Islamic economic system. While this suggestion is a step in the right direction, it still has problem since not all profits are ÍalÉl, as for example, profits from gaming and liquor businesses are definitely ÍarÉm. This paper dis...

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Main Author: Yusoff, Mohammed
Format: Article
Language:English
Published: International Islamic University Malaysia 2013
Subjects:
HB522 Income. Factor shares.Interest.Profit.Entrepreneurship
Online Access:http://irep.iium.edu.my/34023/1/RIB%C3%93%2C_PROFIT_RATE%2C_ISLAMIC_RATE%2C_AND_MARKET_EQUILIBRIUM.pdf
http://irep.iium.edu.my/34023/
http://iium.edu.my/enmjournal/index.php/enmj/article/view/238
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spelling my.iium.irep.340232014-01-09T08:07:28Z http://irep.iium.edu.my/34023/ Riba, profit rate, Islamic rate, and market equilibrium Yusoff, Mohammed HB522 Income. Factor shares.Interest.Profit.Entrepreneurship Muslim economists have suggested the profit rate to replace ribÉ in an Islamic economic system. While this suggestion is a step in the right direction, it still has problem since not all profits are ÍalÉl, as for example, profits from gaming and liquor businesses are definitely ÍarÉm. This paper discusses the concept of ribÉ and differentiates it from the profit rate and Islamic rate. As ribÉ is prohibited in Islam, this paper explains the concept of Islamic rate, which is lawful in Islam as it is directly derived from the profits of ÍalÉl business activities. The Islamic rate is the clearing mechanism in the money market and good market. The paper has also derived the money market equilibrium and good market equilibrium conditions or the IS-LM framework which can be used to analyze the efficacy of monetary and fiscal policy in an Islamic state. In order to clear the notion that the conventional banking system has been dictating the decision makings in the Islamic banking system in Malaysia, the paper uses the Toda-Yamamoto technique of Granger causality test to see the causality between the Islamic investment deposit rates, which are Islamic rates, of Islamic banking and the fixed deposit rates, which are ribÉ, of the conventional banking. The results are not conclusive as a number of Islamic investment deposit rates have caused the fixed deposit rates while some fixed deposit rates cause Islamic investment deposit rates, and yet some others show that there are no causality between the two types of rate. International Islamic University Malaysia 2013-06 Article REM application/pdf en http://irep.iium.edu.my/34023/1/RIB%C3%93%2C_PROFIT_RATE%2C_ISLAMIC_RATE%2C_AND_MARKET_EQUILIBRIUM.pdf Yusoff, Mohammed (2013) Riba, profit rate, Islamic rate, and market equilibrium. International Journal of Economics, Management and Accounting, 21 (1). pp. 33-63. ISSN 0128-006 http://iium.edu.my/enmjournal/index.php/enmj/article/view/238
institution Universiti Islam Antarabangsa Malaysia
building IIUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider International Islamic University Malaysia
content_source IIUM Repository (IREP)
url_provider http://irep.iium.edu.my/
language English
topic HB522 Income. Factor shares.Interest.Profit.Entrepreneurship
spellingShingle HB522 Income. Factor shares.Interest.Profit.Entrepreneurship
Yusoff, Mohammed
Riba, profit rate, Islamic rate, and market equilibrium
description Muslim economists have suggested the profit rate to replace ribÉ in an Islamic economic system. While this suggestion is a step in the right direction, it still has problem since not all profits are ÍalÉl, as for example, profits from gaming and liquor businesses are definitely ÍarÉm. This paper discusses the concept of ribÉ and differentiates it from the profit rate and Islamic rate. As ribÉ is prohibited in Islam, this paper explains the concept of Islamic rate, which is lawful in Islam as it is directly derived from the profits of ÍalÉl business activities. The Islamic rate is the clearing mechanism in the money market and good market. The paper has also derived the money market equilibrium and good market equilibrium conditions or the IS-LM framework which can be used to analyze the efficacy of monetary and fiscal policy in an Islamic state. In order to clear the notion that the conventional banking system has been dictating the decision makings in the Islamic banking system in Malaysia, the paper uses the Toda-Yamamoto technique of Granger causality test to see the causality between the Islamic investment deposit rates, which are Islamic rates, of Islamic banking and the fixed deposit rates, which are ribÉ, of the conventional banking. The results are not conclusive as a number of Islamic investment deposit rates have caused the fixed deposit rates while some fixed deposit rates cause Islamic investment deposit rates, and yet some others show that there are no causality between the two types of rate.
format Article
author Yusoff, Mohammed
author_facet Yusoff, Mohammed
author_sort Yusoff, Mohammed
title Riba, profit rate, Islamic rate, and market equilibrium
title_short Riba, profit rate, Islamic rate, and market equilibrium
title_full Riba, profit rate, Islamic rate, and market equilibrium
title_fullStr Riba, profit rate, Islamic rate, and market equilibrium
title_full_unstemmed Riba, profit rate, Islamic rate, and market equilibrium
title_sort riba, profit rate, islamic rate, and market equilibrium
publisher International Islamic University Malaysia
publishDate 2013
url http://irep.iium.edu.my/34023/1/RIB%C3%93%2C_PROFIT_RATE%2C_ISLAMIC_RATE%2C_AND_MARKET_EQUILIBRIUM.pdf
http://irep.iium.edu.my/34023/
http://iium.edu.my/enmjournal/index.php/enmj/article/view/238
_version_ 1643610552303353856
score 13.211869

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