What Are Advantage And Disadvantage Of Islamic Economy System?

The economic system of Islam is regulated to to be compatible with the Quoran. This basically means, that certain activities are forbidden, such as accumulation of interest, speculation, etc.

To go into the finer details of the system here is not possible, partly due to space limits and partly due to a lack of serious, understandable information. It would be easy enough to list a whole host of terms, but it would most likely confuse rather than inform.

• Advantages

Basically, one of the main advantages of the Islamic economy is that Banks are not charging interest on loans. In fact, loans are regarded as an exchange of assets, rather than the lending of money. When a loan is taken out to purchase an asset, the bank will make the purchase, then sell the asset to the individual at a marked up price.

Although this is usually taking the time value of money into consideration, and is, in reality, similar to charging interest, it leaves the borrower free from changes in interest rates. If money has been used to invest in a business, the bank will not charge interest, but receive a percentage of the profits. If the business fails, the bank shares the risk.

This should be of assistance to individuals who could not borrow otherwise. In addition, the Quoran forbids the earning of profits through unfair trading or practices which are damaging or harmful to society.

• Disadvantages

Although borrowers are not affected by rising interest rates, they also do not get the benefit of falling rates. According to some critics of the system, it is riddled with incoherence introduced by different interpretations of the Quoran. Banking relies on an honor system, which often encourages fraud and non-payment. This, in turn, can hinder the growth and stability of the economy.