The Islamic gracious monetary instruments: a theoretical approach
Journal of Economic and Administrative Sciences
ISSN: 1026-4116
Article publication date: 10 May 2013
Abstract
Purpose
This paper attempts to construct Islamic gracious monetary instruments namely Qardh hassan, Waqf and Gift central bank certificates. The certificates do not only function as monetary instruments per se, but also give economic and social benefit for the public such as the needy. However, the central bank and its counterparts still need to manage the funds professionally to produce profit, maintain the values of the funds and prevent business losses. As such, this theoretical study aims to offer alternative Islamic monetary instruments for the central bank to manage liquidity and especially to improve the welfare of the people.
Design/methodology/approach
The paper exercises three Islamic gracious monetary instruments (Qardh hassan, Waqf and Gift central bank certificates) for both investment based (Mudarabah and Musharakah) financing and trading based (Ijarah and Murabahah) financing. Every instrument is elaborated mathematically to analyze its economic impact, treatment of profit and loss coming from the business and status of the funds. Finally, the paper compares every gracious certificate and explains the terms and conditions to use them optimally.
Findings
The exercises find unique characteristics, operations and contribution of every Islamic gracious monetary instrument to the economy. Based on economic impact, nature of the contracts and management of the funds, the central bank can now have alternative Islamic monetary instruments to be offered to the generous depositors to improve the welfare of the people particularly the needy.
Research limitations/implications
The paper only assesses the feasibility of three Islamic gracious monetary instruments. There might be more alternatives of Islamic gracious monetary instruments to be considered and elaborated.
Originality/value
To the best of author's knowledge, this is the first paper to try to exercise the alternative of the Islamic gracious monetary instruments.
Keywords
Citation
Ismal, R. (2013), "The Islamic gracious monetary instruments: a theoretical approach", Journal of Economic and Administrative Sciences, Vol. 29 No. 1, pp. 63-80. https://doi.org/10.1108/10264111311319231
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited