The Economic Implications of Replacing Interet System by a Participatary System

Islam like other divine religions combats riba and tries to eliminate it by regarding it as unjustly earnimng. On the other hand Islam introduces other alternatives such as infaq, waqf, qardulhasanh, and purchase by credit to finance the consumption needs and introduces musharakah, mudaraah, musaqat and sale by credit to finance the investment needs. This paper attempts to explore the ecnomic impacts of one Islamic vahicles i.e. musharakah.In musharakah system, which has many types a firm is financed by the savings of someone who agrees to share the profits and losses of the firm instead of lending on the basis of interest.In this paper the reflections of replacing interest based systemby a participatory arrngment on variables like savings, investments, production, employment, the general price equilibrium, income distribution, and public welfare are analized. The author concludes that by abolishing interest and replacing it by a pls system not only the economy will not face any problem but all basic variables will get better