The approach of Islamic economists to the prohibition of interest in the context of Böhm-Bawerk’s time preference theory of interest

Abstract

Purpose Böhm-Bawerk’s time preference approach had significant importance among many other theories of interest. His assertion based on inherent human nature and the distinction he made between the positive and normative aspects of interest were remarkably authentic. As it is assumed that any efficient evaluation, judgment or regulation on the legitimacy of interest has to consider the theory of time preference, especially Böhm-Bawerk’s approach, the paper aimed to examine the Islamic economists’ response to the time preference theory of interest. Design/methodology/approach The paper presents Böhm-Bawerk’s time preference theory of interest. Then, it evaluates the Islamic economists’ views on the concepts of the time value of money and time preference qualitatively by scrutinizing the relevant literature. Findings It is observed that there is not any proper response of Islamic economists to the assertions of the causes of time preference. Responding to such challenges requires an approach that is mostly developed in the positive domain. Originality/value Although it is evident that interest is regarded as destructive in Islamic economics, the consideration is primarily normative. However, a convincing assertion also requires to be justified in the positive domain. Empirical works are exhibiting the problems with interest-based transactions. Besides, this paper raises the need for theoretical expositions of Islamic economists in response to the interest theories, which claim that the existence of interest is inevitable.