The Time Value of Money Concept in Islamic Finance

The American Journal of Islamic Social Sciences 23:1

24 Pages Posted: 1 Nov 2018

See all articles by Abu Umar Faruq Ahmad

Abu Umar Faruq Ahmad

Independent

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Date Written: 2006

Abstract

The time value of money is a basic investment concept and a basic element in the conventional theory of finance. The Shari`ah does not rule out this consideration, for it does not prohibit any increment in a loan given to cover the price of a commodity in any sale contract to be paid at a future date. What is prohibited, however, is making money’s time value an element of any lending relationship that considers it to have a predetermined value. Here, the Shari`ah requires that a loan be due in the same currency in which it was given. The value (i.e., purchasing power) of paper currencies varies due to changes in many variables over which the two parties of a loan contract usually have no control. This study examines possible modus operandiof time valuation according to the Shari`ah’s precepts vis-à-vis the concept of money, and whether any value can be attributed to time while considering money’s value. For this purpose, it investigates the juristic views on such relevant issues as the permissibility of difference between a commodity’s cash and credit prices and an increase and reduction of the loan’s amount in return for early repayment.

Suggested Citation

Ahmad, Abu Umar Faruq and Hassan, M. Kabir, The Time Value of Money Concept in Islamic Finance (2006). The American Journal of Islamic Social Sciences 23:1 , Available at SSRN: https://ssrn.com/abstract=3263783 or http://dx.doi.org/10.2139/ssrn.3263783

Abu Umar Faruq Ahmad

Independent

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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