http://www.klgates.com/files/Publication/7b26817f-5328-42a2-8ae6-854d1a0bdb4b/Presentation/PublicationAttachment/786df802-737d-4fb9-b4ed-b48f8bd3efa9/Islamic_Finance_News_2016.pdf

Today's profit rate is benchmarked against interest rate so to attain 100% shari'ah compliant there is need to have independence pricing mechanism which is trully free from AL-Batil or prohibited elements as mentioned in the holy Quran and Hadith.

Md. Akter

It is not simply replacement of interest rate by rate of return/profit rate, there are various factors involved to be shariah compliance, as Waeibrorheem has mentioned a few.

When I was involved in Banking software implementation, one of a non-muslim team member was apprising as "Islamic banking concept is very simple; wherever interest is there remove the word and replace it by percentage of profit / return".

Hope your question is not on these lines.

The profit that is being made in any business includes two important major parts. Cost of capital and cost of labor. If you equate the interest to the profit then all the money that is being made going to the banking system as the cost of capital and nothing will remain to provide cost of labor for workers and managers!

There is good advice in all of these but the simplest is the removal of all direct and indirect reliance on interest or any other non-Islamic rating. This leaves a simple market driven profit rate, i.e. what do you want stakeholders to benefit by.

Although this is market driven it is not your concern as to what others base their opinions on

Simple Profit Return overcomes cost of capital issues as that should be included in the value set, the remainder is for internal stakeholders.

Dear Akbar uddin

Hi

in my opinion, nobody could neglected that, removing interest from economy is a key & important step for making an economy Shari-ah compliant. but there are very important factors that, are very important for Shari-ah. if you eliminate usury from economy then you have "interest free" economy. But, if inside this economy there is not transparency, or there is high inflation, uncertainties and so on, you could not say the economy is completely Islamic.

this is my idea.

good luck.

Omid one idea you have mentioned is very important. Interest is not strictly forbidden but Usury is. It is the extent of relative opinion that terns interest into Usury and that is a difficult task as it brings into play the market rate compared to the negotiations at hand between the parties of the deal.

I cannot agree with the rest as Usury removal does not mean interest-free and there will always be opaqueness and volatility as the economy is built upon differing views and herd-mentality. However transparency is a must as the LIBOR debacle has proved.

Dear Stefan,

Contemporary Islamic jurists agree unanimously that there is no difference between usury and interest.

Interesting to know MD.Akther, it has always intrigued me how commentaries are formed. It worries me that contextual data and information is lost and later generations can choose which result they like. Hopefully this is diminishing as the information age develops as it applies not only to Islamic Finance but all forms: See the definition of EM and Hedge Funds over the years. Investors are right to be confused.

Thank you for the clarity.

Hi

I want to mention an important point about my past answer. if everyone want to model an Islamic economy, it`s important to replace interest rate by Islamic instruments that are Shari- ah compliance. and eliminate other key factors that are against Islamic principals. But there are other important factors beyond, interest, gambling, ... that we should consider till our model become Islamic. like; Justice. as you know, justice is a "very" important principal in Islamic Shari-ah. Factors that i mentioned at the past answer, are the factors that Imperils other Shari-ah Purposes and principles like "Justice". so we must consider them. Usury is forbidden in Islamic Economy, because it is against justice(one of reasons). so justice is a fundamental principal in Islamic perspective. and justice is an example and there are other principals.

I mention again that, eliminating interest from economy is a piece of an puzzle of constructing an Islamic economy.

About Mr. Wasilewski`s post, about my answer, i should say that, definition of usury and the characteristics that cause an income become usury, are clear in our Quran and Ahadith. so everyone can induce from them that, interest is usury or not. 

this is my idea.

thanks.

interest no doubt is the fundamental factor which differentiate the Islamic banking from controversial banking. however, besides interest there are other issues which still could possibly effect the shariah compliance status of any financial activity. for example if we deal with pure real assets or say we operate at profit and loss basis, the presence of gharar and maisir can still voilate the principles of Shariah. 

In my opinion the story does not end at interest in fact interest is the beginning. in the current complex financial markets the issue of gharar is very apparent and can be found in almost every transaction to some extent 

Yes. An economy in which interest rates replaced by rate of return achieved in accordance with Islamic law is Islamic economy, albeit if there are no other economic activities opposed Islamic laws.

Hi

there is not consensus about this issue. among researcher that say "Yes" to your question , Like Mr. Zarra-Nezhad , there are some that say "No". for example,

see (References are in Persian):

بخشي دستجردي و همکاران (1393): نقدي بر توجيهات معاصر پيرامون تفاوت بهرة طبيعي از ربا

در نگاه انديشمندان اقتصاد اسلامي

I do not have enough research in this field. so personally i do not have a definite answer to this question. I only wanted to say, "there is not consensus about this issue".

Thanks

Dear Dr. Akhter Uddin,

Since Islamic Economics, simply put, tries to put in place a system of service charges for use of finance but has to compete with commercial banks run on interest income, hence as long as Dhaka Stock Exchange is being stable and growing I think both principles can be considered Shariah compliant by the principle of efficiency in Public Systems and Social Welfare which is embedded in the mechanism principle of "Muqaddamah" of Shariah Law. That's my tentative reply.

Soumitra K. Mallick

for Soumitra K. Mallick, Somak Raychaudhury, Sandipan Mallick,

of RHMHM School,

USA, Japan, India.

If we plug out interest rate and plug in real rate of return or profit rate, this is accordance with Shari'ah rules.