In the aftermath of the Islamic resurgence movement, the call for the
abolition of interest and the introduction of profit and loss sharing
schemes gained momentum. Islamic writers have concentrated on
describing the operations of an Islamic bank in an interest based
economy and others have outlined the principles and functions of the
Islamic economy. However there has not yet been a comprehensive
study dealing with the implications of abolishing interest in a
Therefore the major objective of this thesis is to examine the
possible introduction of interest free banking in Kuwait, its
implications, operations, advantages and diyantages. It also focuses upon the transformation process necessary to bring about
these required changes.
The first chapter presents an overview of the Islamic economic system
and its underlying principles; these are the cornerstone for any
transformation from the conventional economic system to a new Islamic
system. The second chapter focuses on Islamic banking, its
methodology, objectives and main operations in theory and practice.
The third chapter deals with the main features of the Kuwait economy.
An emphasis is put upon the existing banking system and the role of
the central bank in conducting its interest-based monetary policy.
The thesis then describes the changes required in the current
financing instruments employed by Kuwaiti banks in order to adapt to
a new Islamic system. In this respect it is assumed that the current
banking structure will remain intact. Stress is placed upon the
changes required in the short, medium and long-term financing
instruments used domestically.
The central bank's changing role and the monetary policy implications
of a new Islamic system are also analysed.
The final chapter summarises the findings and recommendations of the
thesis and the advantages and disadvantages of interest free banking
with reference to Kuwait.
A Doctoral Thesis. Submitted in partial fulfillment of the requirements for the award of Doctor of Philosophy of Loughborough University.