A Critical Review of the Law of Interest-Free Banking Operation and Suggesting an Alternative Law

Although passing the Law of Interest-Free Banking Operation and its implementation very soon after the victory of the Islamic Revolution and the elimination of Riba or usury from Iranian banking system was regarded a great success for the designers of the law and the then heads of banking system, it should not be regarded the end of job and reaching to a complete law free from any deficiency, rather it is in need – like any human law – to be revised and complemented successively. Now after more than 23 years from implementation of the law, it seems to be time to revise the Interest-Free Banking Operation and exerting some remedies, making use of the experience of Iranian banking system and other Riba-free banks. For this purpose we launched a vast study on the critiques put forth by a wide range of scholars and expertise from the time of implementation of the law. The main complaints and critiques can be categorized as follows:1. The absence of a clear and practical definition from banking system and defining the range of inclusion of the law.2. The influence of the economic situation of the first years after revolution upon the law, specially the affect of governmental approach to the banks.3. Incapability of the law for designing models which suits different kinds of bank and non-bank credit institutions.4. Incomprehensiveness and insufficiency of the law about the goals and tastes of depositors.5. Incomprehensiveness and insufficiency of the law about the goals and tastes of demanders of facilities.6. Incomprehensiveness and insufficiency of the instruments of monetary policy used in the law.7. The absence of suitable solution for facing with delayed claims.8. The absence of a mechanism for the relation between banks and credit institutions on the one hand and foreign and international bank on the other hand.9. The absence of a mechanism for religious and jurisprudential supervision upon the activity of banks and credit institutions.10. The absence of provisioned mechanism for research and development of interest-free banking.Making use of the experience of banking system Iran and other countries, we have made a critical review of the Law of Interest-Free Banking Operation, and then to remedy and complement it, an alternative law is suggested.