Riba Free Economy Model
MUHAMMAD ARIF, DR. ASHIQ HUSSAIN, MUHAMMAD AZEEM

Abstract
The purpose of this research is to develop a model of Riba Free Economy in Pakistan. A research, more inclined towards Islamic way of life needs to find out the principles, Quranic and Hadith support. Islam as a religion presents novel systems for the welfare and benefits of the society and prohibits a system where people earn profit without putting labour or efforts. Islam believes in a business of commodities, changes with same commodity and does not allow changing with precious commodity or with inferior commodity at the same rate. In such a case the rate and wealth of commodity would be determined and then the exchange would be made. Logic has been sought, taking riba as an economic issue and in the perspectives in which it is condemned by Islam, Christianity and Judaism. References from Quran and Hadith have also been forwarded. The conditions for riba has been laid down as increase in principal amount and increase with respect to payment period, the more period causes more increase. Riba has been categorized into two types like Riba Al-Nasiyah and Riba Al-Fadl. Riba Al-Nasiyah is the amount over and above the principal amount received by the lender from borrower at pre-determined rate. Riba Al-Fadl is the exchange of homogeneous commodities. After describing riba and its types, reasons have been sought for prohibition of riba from Quran referring to Surah Al-Rum-39, Surah Al-Nisa-161, Surah Al-Imran 130-2 and Surah Al-Baqrah 275-281. Help from Hadith (Muslim, Ahmed, Tirmidhi and Ibn-e-Majah) has also been sought. Riba generates various evils like moral evils, social evils and economic evils. Many people argue that even if the interest is prohibited in Islam, interest free banking system is not practicable in the modern world. An economic system minus interest cannot be visualized. Researcher has given the comparison of interest based banks and Islamic banks. Today banks play a very vital role in economic development of a country. In view of the important role of modern banking system why it is necessary to replace it with interest free banking? Reasons for launching interest free banking in Pakistan have been narrated. A brief analysis of economic systems i.e. Capitalism, Communism and Islamic system, is made. Features, principles and objectives of Islamic economic system have also been explained. Types of takaful (Islamic Insurance) and various models of takaful have also been discussed. According to our opinion the element of riba, gharar and gambling is involved in conventional insurance as practiced by the insurance companies and this insurance system is not acceptable in Islam. A model of riba free economy has been developed. Two Stage Least Square (2SLS) technique to estimate structural equations has been used. The focus of our research and model has been on the possible impact of riba free economy on savings, investments, growth rate and its pattern, allocative efficiency and the overall stability of the Islamic economic system. This research recommends that a riba free economy in Pakistan will have positive effects on the economy.

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