An Alternative Mechanism to Interest Proposed to Achieve Efficient Monetary Capital Allocation in the Islamic Economy

Abstract

Economic systems aim to achieve efficiency in allocating resources, and this requires setting prices that reflect the true scarcity of these resources. Among these resources is monetary capital, and the question arises about how to achieve the efficiency of monetary capital in the Islamic economic system in which interest is not supposed to exist as it is a form of usury that is forbidden in this system. This research proposes an alternative to interest that is consistent with the value provisions of the Islamic system and can be used to achieve an efficient allocation of monetary capital in this system. The result of the search was the Islamic economic system can achieve an efficient allocation of monetary capital without the need for an interest rate by developing allocation mechanisms that are compatible with its value provisions.