Islamic Economics

Islamic Economics

Explaining the Relationship between Interest-Free Banking and Bank Ownership of Business Enterprises in Iran

Document Type : Original Article

Authors
abolghasem tohidinia 1
Kimia Orouji 2
1 Assistant Professor, Faculty of Economics, University of Tehran, Tehran, Iran.
2 Master's degree graduate, Faculty of Economics, University of Tehran, Tehran, Iran
10.22034/iec.2025.2044787.2810
Abstract
Banks are among the most important financial institutions that influence the economic growth and development of countries. One of the key issues in the banking sector, which can have both positive and negative consequences, is the ownership of business enterprises by banks (known as bank-based conglomeration or banking business ownership). In recent years, the negative effects of such ownership have become increasingly evident in Iran's banking system. Given that, following the Islamic Revolution, Iran’s banking system was officially operated under the Law of Interest-Free Banking enacted in 1983 (1362 AH), examining the role of this law and the broader framework of interest-free banking in the emergence of this issue offers a novel and innovative perspective not previously addressed in the literature. The findings of this study reveal three key points: First, an interest-free bank is an institution that combines financing with direct participation in investment or business activities. Therefore, it is not considered a financial intermediary within the money market, but rather a capital market institution, and thus is theoretically unaffected by the adverse consequences of business ownership. Second, Iranian banks have not implemented the interest-free banking law in practice; instead, they operate similarly to conventional banks within the money market framework. Third, the nature of this money-market intermediation by Iranian banks has been a major contributing factor to the negative outcomes of bank-led business ownership in the country.
Keywords
Interest-Free Banking
Conventional Banking
Bank Ownership of Businesses
Capital Market
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