ABSTRACTS

Measuring the Cost of Qurd ul Hasaneh and Comparision with Other Islamic Financial Contracts

Zahra Abbasi & Syed Kazem Sadr

The purpose of this study is to measure the processing cost of contract contained in any Qurdul hasaneh financing by the Agricultural Bank of Iran during the period 1363-1379 (1984-2000). For this end alternative cost accounting menthols were reviewed and the Activity Based Costing (ABC) method was chosen .The superiority of ABC method over other cost accounting tools is that it considers all the activities that are provided for the joint supply of goods or services and then selects the best appropriate base for cost allocation among them. As stated this method is used for measuring the cost of Qurdul-hasaneh and other modes of financing in the Agricultural Bank. As expected, the calculated contract cost varies from a year to another during the period of the study since bank inputs for the supply of financial services is variable at the same period. In the year 1379 (2000), cost of every Qurdul-hasaneh installment sale and civil partnership financial contracts were 79305, 538225, and 284535 rials respectively. In the same year, cost of forward purchases and mudaraba contracts were 243722 and 307251 respectively. As of 1376 (1997), cost of Qurdul-hasaneh was lower than other tools of finance. However, the cost of Installment sale and Mudaraba were higher than other instruments of finance during all the period of study. When calculated with real prices, using appropriate indices, the real cost of the mentioned tools is found to be less variable than respective nominal terms during the whole period of study. The real cost of financial contracts demonstrate stable trends when they are sketched. Although the cost of Qurdul-hasaneh and Installment-sale contracts are almost one of the lowest and highest contract cost in nominal terms during the periods of study, they differ a little in real terms.

To study the effects of contributing factors to the cost of contracts, their respective cost functions were estimated. It was found that the real wages has a positive and significant effect upon the cost of contract for all modes of financing during the periods of study. For instance, one percent increase in real wages increases the cost of Qurdul-hasaneh contract by 0.98 percent. The effect of cost of capital input, total number of contracts concluded and total sum of finance in each year were also studied, but unlike the labor wage input, they did not have uniform impact upon the increase or decrease of financial cost for all modes of financing.

Finally, findings of this study seem to help considerably the Agricultural Bank of Iran to take measures for reducing the cost of offering financial Islamic services to its customers.

Keywords: Cost Accounting, Islamic Finance, Cost of Qurd ul Hasaneh, Financial Cost function, Islamic Banking, Islamic Financial Instrument, Agricultural Credit, Agricultural Bank.

Evaluating the Contracts and Methods of Bank Facilities in an Interest Free Banking

Syed Abbas Musavian

Twenty years after the implementation of usury free banking law in Iran it is a proper time to examine and evaluate the Islamic banking system. Resource allocation and concession of banking facilities is one of the main aspects of Islamic banking.

By the introduction of usury free banking law and elimination of interest based loans other alternative methods of resource allocation were developed. These methods may be classified under three following categories: qard ul hasaneh, transaction contracts (installment sale, lease purchase, etc.) partnertship contracts (musharikat madani, musharikat huquqi, mudarbah etc) and direct investment .

Reviewing the performance of these methods suggest that only the transaction contracts are compatible with the nature and goals of commercial banks and the tastes of applicants of banks. Thus obliging all banks or customers to adopt other forms of contracts may lead to cause wastage in bank resources and formalization of contracts.

The methods of providing customers with facilities are another issue in the banking debates. Besides the conventional forms of loans, credit cards and credit in current accounts are increasingly used in the conventional banking system. However, the empirical studies of transaction contracts show that this category of contracts enjoy a better capability to serve the concession of banking facilities both in conventional form and also in credit card and credit in current account forms.

Explaining some difficulties in the conventional forms of facilities a new model is proposed for Iranian commercial banks on the basis of transaction contracts.

Keywords: resource allocation, qard ul hasaneh, transaction contracts, direct investments, commercial banks, professional banks, credit cards, credit in current accounts.

Examining the Draft to Rationalize the Profit Rates in Bank

Mohammad Reza Yosoufi

Investment is one of the key variables in any economy. It’s adversely related to interest rate. Therefore, to reduce the production costs and promote investment a draft is presented by representative of Islamic parliament of Iran to rationalize the current profit rates for bank facilities. It is argued that in view of the above theoretical foundations and a high bank spread, extravagancies and unnecessary spending in the Iranian commercial banks, the profit rates of bank facilities can be reduced to foster a higher economic growth.

In 1970s as McKinnon and Shaw’s theories were raised and the weakness of financial repression became clear the need for financial liberalization policies gained ground. However the experiences of countries who adopted liberalizing policies showed that the success of these polices depend on other prerequisites. Therefore, the proposal to rationalize bank profits rates lacks the due theoretical basis. In addition, as a result of high risk of investment and policy instability in Iran the sensitivity of investment to banking profit rates is relatively low.

Eventually, although it seems that there is a large bank spread in Iranian banking, but the root of problem lies in the deferred debt payments, high inflation rates and high bank costs. To reduce these three variables proper policies must be adopted and normative measures should be avoided.

Keywords: financial repression, liberalization, bank spread, investment, profit rate, interest rate.

Sustainable Development on the Basis of Justice

Saeid Farahani Fard

The negative impacts of industrialization and economic development as a result of prevalence and promotion of consumerist culture encouraged by the secular theories of growth and development, has endangered the development and its sustainability. Moreover, considerable parts of societies are deprived from the positive achievements of development (i. e. welfare and other divine endowments). Explaining justice in its general form the article argues that the creation of world on the basis of justice fits this meaning of justice. Hence the relation of human being, nature and society are structured on the basis of this interpretation of justice. By observing this relation, those who are brought up in an Islamic environment are capable to achieve the Godly desired development. The second part is devoted to explaining the sanctions for implementing justice through exploitation the natural endowments. It’s argued that in an Islamic system a strong government which controls the ownership or management of natural recourses is legally provided with suitable instruments to control and supervise the exploitation of recourses to ensure the a development with justice.

Keywords: sustainable development, formative justice, juridical justice, natural resources, environmental resources, stability, flexibility, exploitation.

An Assessment of the Views of some Islamic scholars on the nature of money

Mohammad Ismaiel Tawasoli

Money has been the subject of many legal and jurisprudential rules in an Islamic economy. Therefore, understanding the nature of money has gained a high significance. Hence, a number of Muslim scholars have made several attempts to theorize the nature of money. Ayatollah Sadr, ayatollah Bojnordi, ayatollah Shahrodi, and Yosoufi, have tried to explain and attribute the nature of money in its purchasing power. The authors of “money in Islamic economy” have favored the theory of nominal value of money. Examining the background and basis of these theories the present article argue that they are not reliable Therefore the need to develop a new theory on the nature of money remains unfulfilled.

Keywords: money, nature of money, purchasing power, theory of nominal value.

A Brief History of Economics in a

Scientific-Ethical Framework

James alvi

Translated by: Ali Nemati

A glance at the history of economic thought shows that economics has grown in an ethical formwork. For long time it was considered as a branch of practical sciences. However due to many reasons including the considerable advances in natural science and the prevalence of empirical methods and positivistic methodologies in economic science economics gradually departed from ethical concerns.

The first part of this article briefly reviews the link between economics and moral philosophy prior to Adam Smith including the Aristotle’s tradition in which economics was part of a wider study subject that included ethics and politics as well. This classification was valid throughout the middles ages.

The second part of article discuses economics from Adam smith’s perspective. Although most of experts hold that the modern economics was founded by Smith and his seminal book” The Wealth of Nations” however, in fact this is the interpretation that the advocates of positive economics make for Smiths views whom they believe to be the founder of modern economics. Anyhow a closer and deeper look into Smith’s works suggests that his approach to economics was far different from the present definitions of economics.

The third part of article, covering the period after Smith to 1900, reviews the views of Malthus, Ricardo, Stuart Mill, Marshal etc. shows that although they have largely contributed to the technical parts of economics but most of them considered economics as a science that serves ethical ends.

Keywords: economics, ethics, moral philosophy, history of economic thought, practical sciences, methodology of economics, positive economic.