The impact of Gharz al-Hasaneh on Income Distribution in Iran (By Using Index of Income Relative Share of Deciles)

In Islamic financial system, Gharz al-Hasaneh-(loan without interest)- has introduced as one of the effective instruments for decreasing income inequality that it by establishment money flow from wealthy classes to low income classes has a main role in decentralization of wealth in wealthy classes and income improvement in low income classes. The aim of this paper is to investigate the short-run and long-run relationship between the Gharz al-Hasaneh as independent variable and income distribution as dependent variable based on Kuznets hypothesis by using time series data and ARDL method during 1984-2012. In this model, the index of income relative share of deciles has been used as the index of income distribution because this index calculates the relative intensities of income inequality between high and low income deciles more accurate than other models. Estimation result reject Kuznets hypothesis. Also, estimation results indicate that the Gharz al-Hasaneh has significant impact on distribution income improvement. In other word, one unit increasing in the Gharz al-Hasaneh improves income distribution about 0/1594E-3 unit. Also, error correction coefficient with 96 percent shows adjustment short-run model to long run model at each period is 96% that this adjustment speed is very high and one period is enough for adjustment model. In this study, while emphasizing the restoration of the divine tradition Gharz al-Hasaneh and regarding the decreasing share of this loans in Iranian banking system, this paper suggests that with decreasing legal reserve ratio of the Gharz al-Hasaneh deposits and exact monitoring on the transfer of this facilities to poor people, we can improve income distribution and reduce the gap of incomes classes.