Abstract:   This paper looks at the issue of time value of money in general and its relevance to Islamic economics and finance in particular. After a brief overview of some of the key ideas related to this concept in conventional economics, the paper attempts to investigate the basic reality of time value of money. It suggests that, in general, people do not prefer present consumption over future consumption. Instead, there are some other factors which influence their decision to receive, if possible, present income (and not present consumption) sooner than later. It is then argued that, from an Islamic point of view, neither a positive time preference nor a preference for realizing an income sooner than later, justifies a reward for consumption loan. It is emphasized that although the case of loans for consumer durables appears to be different from those given for necessities, the severe condemnation of the later requires a very careful look at the permissibility of sale on deferred payments. The paper concludes that devising a solution to sale and purchase of consumer durables without involving riba in any form will be a unique contribution of Islamic finance.

Keywords:   Interest, Time value of money

Publisher:   ILMA UNIVERSITY

Published:   15 December 2006

Issue:   Issue 2 : Volume 2

E-ISSN:   2409-6520

P-ISSN:   2414-8393