Market competitiveness and anti-monopolist policy: Lesson learned from Riba Al-Fadl prohibition

Abstract

The objective of this paper is to discuss and assess some hypotheses purporting to explain the economic damage associated with riba al-fadhl through the methodology of Islamic economics that depends on the derivation of Shariah objectives and translating them into strategic policies for modern Muslim societies - even though it utilizes concepts and tools of neoclassical economics. The paper justifies the anti-monopoly hypothesis and protection of competitiveness by reference to the Maliki reasoning that attaches the property of staple-storable food to the four ribawi items (dates, wheat, barley, salt), given the fact that staple storable food would normally command strong market demand and low price-elasticity. Then to analytically confirm that hypothesis against alternative ones suggested by earlier scholars (Ghaban prevention, blocking of means to riba al-nasaa' and dropping luxurious purpose), a suitable analytical framework with reasonable assumptions has been introduced. In particular, ghaban-possibilities model has been developed to assess the three alternative hypotheses while quality-differential equilibrium model has been used to assess the anti-monopoly hypothesis. The end result seems to support the anti-monopoly hypotheses while offering no theoretical support to any of the three alternative hypotheses.