Determination of the Interest Rate of Facilities in Islamic Banking (Case Study Agricultural Bank)

Subject Areas : Agriculture Marketing and Commercialization

Maids Amirpour Sorkhy ¹ , Azam Rezaeyan Joibary ²

1 - Department of Economic Sciences, Firooz Kooh Branch, Islamic Azad University, Firooz Kooh, Iran
2 - Department of Accounting, Ghaemshahr Branch, Islamic Azad University, Ghaemshahr, Iran

Received: 2020-08-30 Accepted : 2020-12-10 Published : 2021-06-01

Keywords: Interest Rate, Facilities, Islamic Banking,

Abstract :

A group of activists and people claim that banks do not offer the bank interest rate approved by the Monetary and Credit Council in association with banking facilities. This has increased the complexity of the mechanism of providing facilities in the banks and has led to complaints. Such ambiguities are mainly rooted in how the interest rate of facilities is calculated in Iran's Islamic banking. Accordingly, the present study aimed to examine the determination of the interest rate of facilities in the country's Islamic banking. The present study was conducted using a descriptive method. Research findings showed that there were two different ways of determining the interest rate of banking facilities in Iran. One is the simple method and the other is the compound method. When the compound approach is taken, the return difference depends on the length of the contract, i.e. the maturity of installments. This means that unlike the simple method, in the compound method, when the contract period is longer, the return difference will be in favor of the bank.

References:

• Seyed Noorani M. & Tari F. & Aghajani K. & Hassanzadeh A. (2019), "Factors affecting the deviation of facilities", Quarterly of Parliament and Strategy, 9(8): 141-150.


• Haeri Nasab Z. & Soheili K. & Fattahi S. (2018), "The relationship between interest rates on banking facilities and the three main variables of the Iranian money market ". Journal of Economics, 18(11): 36-49.


• Hesami Azizi B. & Mehnatfar Y. & Jafari A. (2016), "The relationship between the effective interest rate on facilities and interest on deposits, with an emphasis on the role of the Central Bank", Quarterly of Monetary-Banking Research, 28(9): 199-221.


• Moosavian A. (2005), "The way to achieve equilibrium bank interest rates", Quarterly of Islamic Economics, 17(6): 55-68.


• Sharifi M. (2013), "Examining the determination of interest rates in Iranian banking (with an emphasis on estimating the supply and demand functions of banking facilities)", Master Thesis, Islamic Banking, Faculty of Economics, University of Tehran, 12(3): 74-89.


• Kheyrkhah M. & Barzegari K. & Morovati Sharif Abadi A. (2016), "Modeling factors affecting the banks' deferred receivables using the system dynamics approach", Quarterly of Economic Research and Policy, 7(2): 113-120.


• Al Buyeh A. & Alam al Hoda S. (2012), "Examining bank interests in inflationary conditions (with an emphasis on the jurisprudential aspect)", Quarterly of Strategy, 6(5): 200-209.


• Khaki G. (2017), "Research method and its types", University of Tehran Press, 15(3): 148-160.