Allocation of investment in an Islamic zero-interest-rate economy

Abstract EN

This paper answers briefly basic questions on how an Islamic zerointerest- rate economy (ZIRE) allocates, through the market, real and financial investments.

Questions addressed include : What is the meaning and scope of the zerointerest imperative ? Wouldn’t zero-interest regime deprive an economy of the price signal essential for efficient market allocation of real and financial investment, hence require central planning to maintain efficiency ? The overall conclusion is that disallowing the charging of interest on loans and debts in such an economy is balanced by its clear respect of private ownership, free markets, and the price signals generated by voluntary exchanges among economic agents as well as its approval of credit sales and rentals.

It is a feasible system that permits efficient market allocation of financial and real investable resources.