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Jeddah: Winner of the 2019 Islamic Development Bank (IsDB) Prize in Islamic Economics, Banking and Finance, Dr. Mabid Al-Jarhi, has delivered a lecture on the gains of switching from conventional to Islamic Finance.
The lecture was organized by the Islamic Research and Training Institute (IRTI), as part of an annual series in which IsDB Prize Laureates deliver lectures on major contemporary issues in Islamic Economics and Finance.
Dr. Al-Jarhi presented the lecture, titled ‘Search Models, Samuelson-Friedman’s & Hosios’ Inefficiencies and Islamic Finance’, on 12 December 2019 at the IsDB Headquarters in Jeddah, Saudi Arabia. Full text of the lecture is available for download here.
He argues that mainstream economics (known as neoclassical economics) has many limitations, and therefore economists need to be able to identify the weaknesses and propose alternative frameworks. The principles of Islamic Economics, he argues, provide such a framework.
Positive interest rate on lending money, Dr. Al Jarhi argues further, causes inefficiency as it leads to the substitution of money for real resources, which leads to inefficient allocation of resources. However, prohibiting interest on money is not sufficient from an Islamic Finance point of view. Financing through trade (like deferred sale) contributes to addressing another kind of inefficiency arising from search for trade partners. Together, prohibition of interest and financing through trade, would improve allocation of resources in the economy.
In addressing questions from the audience, Dr. Al-Jarhi warns that there is a lot to be done to have a proper Islamic financial system in place. Proper regulations and governance are neccessary to address other kinds of inefficiencies arising from partnership of equity financing.
Dr. Al-Jarhi, a monetary and financial economist, is a Professor of Economics and Finance at Ankara Social Sciences University in Turkey. He was awarded the 2019 IsDB Prize in Islamic Economics, Banking and Finance in recognition of his immense contributions to Islamic Economics in a career spanning over four decades.
About IRTI:
The Islamic Research and Training Institute (IRTI) is a Member of the Islamic Development Bank (IsDB) Group responsible for knowledge creation and dissemination in Islamic Economics and Finance, and fostering the use of Islamic Finance to contribute to the sustainable development of IsDB member countries. More information about IRTI is available on www.irti.org . For enquiries about IRTI, please contact Habeeb Idris Pindiga ( hpindiga@isdb.org ).
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