Investigating the Feasibility of Reducing Deferred loans in an Interest-free Banking System

Hossein Samsami/ Assistant professor of economics department, Shahid Beheshti University h_samsami@cc.sbu.ac.ir

@ Saied Karimi/ PhD students of Economics at Idalat University

Received: 2017/12/06 - Accepted: 2017/04/22

Abstract

Deferred debts are one of the most important issues in the banking system. Over the past years, the trend of non-performing loans in the Iranian banking system show an increase, and the share of deferred funds to facilities have reached a worrying number. The main question is why the statistics of Iran's non-performing loans have been incremental, in comparison with the conventional banking system, and what are the main reasons for its creation? It happened in spite of the fact that the Iranian banking system is claimed to follow the interest-free banking law. Considering the specialty of the bank in the money market and the lack of expertise of the bank in the real market, the present study investigates the exact nature of the deferred debts in an interest-free banking system; and engages in a pathological study of the present situation. Using a descriptive- analytic method, we conclude that the deferred payment terminology is only relevant to debt. Therefore, It is not relevant to the Islamic contracts such as Mushārakah.  Compared with the leasing industry, the banking system is not efficient in the use of Installment sale contracts. Based on the results of the paper, the main reason for the expansion of deferred payments is the improper implementation of Islamic contracts. The findings confirm our hypothesis.

Key words: Interest-free banking System, Non-performing loans,  Mushārakah, installment sales, Islamic contracts.