Interest-free banking and finance

Citation

Ishaq Bhatti, M. and Mansoor Khan, M. (2008), "Interest-free banking and finance", Managerial Finance, Vol. 34 No. 9. https://doi.org/10.1108/mf.2008.00934iaa.001

Interest-free banking and finance

Article Type: Guest editorial From: Managerial Finance, Volume 34, Issue 9.

Interest-free or Islamic banking and finance is a relatively new and rapidly growing phenomenon. It envisages a revolutionary approach to managing financial affairs without involving the pre-agreed interest payments and receipts. It replaces the interest-based intermediation between the borrower and the lender with profit and loss sharing and equity-based relationship. The Islamic paradigm encourages risk-taking, innovation and entrepreneurship in business and finance so as to ensure optimal use of global wealth and sustainable economic growth with social justice.

These special issues explore the market-based and ethical credentials of interest-free banking in the perspective of the Islamic banking world-renowned scholars. The first paper in issue 9 is contributed by Masudul Choudhury (Oman) and Sofyan Harahap (Indonesia). The paper presents an in-depth vision of zakat and its socio-economic implications on the human polity. Taking zakat issue to new heights, the paper establishes a tripartite relationship among zakat, Islamic bank and Islamic economy and finance, which is an example of the embedded organic, analytical and institutional factors so as to play a joint role in conveying the relational epistemology of the divine oneness of knowledge (Tawhid) in all issues of the Islamic world-system.

The second paper reflects the views of Sudin Haron and Wan Azmi (Malaysia) over the issue of the determinant of Islamic and conventional deposits in the Malaysian banking system. Third paper by Viverita and Mohamed Ariff (Australia) take stock of the productivity performance of Indonesian firms that are mostly undertaking Islamic business and finance approaches to run their affairs. The fourth paper comes from Mansoor Khan that presents an analytical and comprehensive picture of the Islamic banking and finance movement in Pakistan since its inception in 1980-2006. The paper captures some core findings and lessons from the whole Islamic banking experiment undertaken in Pakistan.

Anjum Siddiqui from Kuwait contributes to the first paper of issue 10. He addresses the issue that delves into the main determinants of saving and their contributions towards economic growth in South Asia. The paper is a commentary on the risk characteristics of Islamic banks and also analyses for the first time the performance of the only two purely Islamic banks currently operating in Pakistan.

The second paper is contributed by Saiful Rosly (INCEIF) and Arshadi Zaini (Bank Negera Malaysia and INCEIF) which strongly supports and justifies that the Islamic banking experience/system is more efficient than its counterpart conventional banking system. The empirical findings of this work hold that rates of return on equity-based deposits and capital at Islamic banks are higher than rates of return on fixed deposits and capital at conventional banks. The third paper by Khan and Bhatti review the latest global developments and growth in the Islamic banking. The paper explores peculiar features of Islamic banking products and services in Middle East and South-east Asia. The final paper by Hatem Al-Zoubi et al. from UAE and Jordan attempts to model the actual effects of Zakah as a fiscal policy tool in wealth redistribution in an Islamic economy. In addition the paper opens a wide channel for future research in conducting monetary and fiscal policy in no government's debt tools economies.

M. Ishaq Bhatti and M. Mansoor Khan

The authors are very grateful to R.A. Afzal, M. Ariff, A. Al Maghyereh, M.M. Al-Awan, Al-Zoubi, W. Azmi, Saqib Ali, R. Ashrafi, M. Choudhury, H. Al-Shanfari, M.F. Khan, S. Tahir, H. Khan, M. Ariff, R. Bhatti, A. Siddiqui, M.I. Bhatti, M.M. Khan, G. Magee, H.A. Zaini for reviewing articles in a short period of time. They are also in debt to International Centre of Education in Islamic Finance (INCEIF), Kuala Lumpur, La Trobe University, Melbourne, the University of South Australia, Australia and the United Arab Emirate University, Al-Ain, UAE for providing all moral and material help to accomplish this project. The authors wish to offer a special thanks to the contributors of this issue and colleagues from Emerald editorial office. Sincere thanks go to Simon Linacre and Rebecca Forster for taking keen interest, and providing invaluable support in finalising the copy of this special issue. However, the authors are fully responsible of any error and/or omission.