Viability of implementing direct interest-free credit clearance system :an Islamic perspective

Abstract

In this study, the direct interest free credit clearance (DIFCC) or also known as mutual credit will be proposed as a complementary currency to the current fiat money system. This system can be one of viable alternatives to solve the problems that exist in current monetary system. The DIFCC, which is based on a netting system, has been implemented successfully by several countries in the conventional setting, not to replace the current fiat money system but rather as a parallel complementary currency. In this system, the distribution of credit as money will not be monopolized by the commercial banks; rather, the distribution is on a mutual basis as long as there are products or services that can be offered to others among the members. As such, the system is fairer compared to the fiat money system and is free from the prohibited elements in Islamic finance such as riba, gharar and maysir as it requires exchange of real goods and services. In the context of the Muslim society, the negative socio-economic effects of using the fiat money will not allow the countries to attain the maqasid al-shariah. This study discusses the viability of implementing the DIFCC model which essentially applies the concept of muqasah (nett-off) and hiwalah (transfer of credit), apart from assessing the shariah-compliance of the model to be implemented as an innovative product in Islamic finance. Shariah scholars’ view will be examined in order to find out whether this system can be considered as ‘shariah-compliant’.In this research, in order to view Shariah scholars’ view on the permissibility of DIFCC system, distribution of questionnaire to a sample of Shariah scholars around Klang Valley was conducted.This research also will scrutinize the knowledge of Shariahscholars on the issues of the contemporary fiat money system. This is in order to ascertain their view whether the DIFCC can be implemented concurrently within the current fiat-money system. Based on this study, most of contemporary Shariah scholars agree that the DIFCC system can be used as complementary currency along side with current fiat-money monetary system.