Evaluating the current interest-free monetary policy tools and suggesting a new one: case of Turkey via examples of Malaysia, Pakistan, and Bahrain

Abstract

Purpose This paper aims to achieve two goals: first, to evaluate the existing interest-free monetary policy tools in the major Islamic financial hubs of Malaysia, Pakistan and Bahrain and; second, to suggest how monetary policy tools in Turkey can be used in other countries. Design/methodology/approach This study follows a qualitative research method based on literature review, comparison, evaluation and design. Findings The policy rate cannot be used due to Shariah concerns. The reserve requirement depends on qard, and the reserves should be kept separately in the central bank. In terms of ijarah sukuk, Shariah concerns should be taken into account and a new structure, as displayed in Figure 3, should be followed. Government investment certificates can be used as an interest-free monetary policy tool. A genuine mudarabah interbank investments can also be used. Wadiah acceptance with no habitual gift can be used as well, and Tawarruq and central bank notes are not preferable due to Shariah concerns as well. Having said that, a Turkey-based tawarruq platform can be structured for others to use instead of applying to London. Originality/value This paper’s unique suggestion is to develop an interbank taqaruz market and a taqaruz method with the central bank. It is also unique for Turkey in the subject.