Incentive Compatible Contracts: The Islamic View (A Discussion Paper)Issam Tlemsani
Robin Matthews
Kingston Business School
2001
Abstract: "The twentieth century has witnessed resurgence in the observance of fundamental Islamic practices around the world. The Islaimization of the financial sectors of many Muslims countries was a natural consequence of this resurgence, and the degree of Islamization varied dramatically across countries with Muslims populations. The Islamic Republic of Iran and Pakistan are at one extreme, where the entire financial sector has been made officially Islamic according to their central banks. Malaysia, Saudi Arabia, and some other Arabs countries have developed a hybrid financial system where Islamic banks coexist with regular financial institutions, and the monetary authorities of those countries regulate both types of financial institutions. This increase in the practice of Islamic banking transformed Islamic economics from a sub-field of Islamic jurisprudence and comparatives systems into one which interacts positively with mainstream economics theory. In this paper we present a basic theoretical understanding of the concept of Riba/interest, the key principle of Islamic banking. We explore the basic principles of Islamic banking, the tools of interest free banking and how Islamic banking can be implemented in a hyper-competitive environment."
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