Essentiality of Qarz-ul-Hassanah in Realizing Interest-Free Society

In this paper we analyse the economic aspects of qarz-ul-hassana in compare with the conventional monetary system. Recent studies in this field mostly have followed a juriseprudence and legal approach. But this study follows a theoretical economic approach for explaining the economic consequences of conventional banking system. We show that this system by encouraging the social time preference and intreset rate, leads to unemployment, by credit creation leads to inflation, and by distorting the present and intertemporal allocation of resources leads to the increasing inequality. Then we argument that qarz-ul-hassana is the essential prerequisite and the complemantary of an interest-free society. Finally it is shown that the transition from conventional monetary system to an ideal system nessesitates a foundamental and essential changes in the conventional institution and regulation of national and international monetary system in a long term process.