Imam Sadiq University"Islamic Finance Research" (IFR)2251-829014420250806Presenting a Network of Themes on the Challenges Facing the Internal Organization of Qarz al-Hasanah FundsPresenting a Network of Themes on the Challenges Facing the Internal Organization of Qarz al-Hasanah Funds6817227783010.30497/ifr.2025.248307.1967FAHassanNasirlouM.A. Student, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran0009-0004-0166-8966Seyed RezaJafarifardPhD Student, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran; and Researcher, Imam Sadiq University Growth Center0009-0002-3979-0612MostafaKhoramiM.A. Student, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran; and Researcher, Imam Sadiq University Growth Center0009-0007-8397-559XJournal Article202505191. Introduction and ObjectiveQard al-Hasan funds constitute a foundational pillar within the Islamic financial system, particularly in the domain of microfinance where they function as socially oriented, non-profit financial intermediaries. These funds aim to provide interest-free loans with the objective of alleviating financial hardship, enhancing social welfare, and supporting low-income and financially excluded populations. Historically rooted in religious, cultural, and community-based traditions, Qard al-Hasan funds in Iran have long served as instruments for promoting social solidarity and distributive justice. Despite their vital role in expanding financial inclusion and contributing to socio-economic stability, there is growing evidence that their operational effectiveness has been diminished by a range of structural, managerial, financial, technological, and regulatory constraints. While scattered studies have addressed particular challenges of Qard al-Hasan funds—such as governance issues, liquidity constraints, weak resource mobilization, or deficiencies in accountability—there remains a gap in systematically identifying and categorizing the internal organizational challenges these funds face. Most previous research has tended to be either descriptive or narrowly focused on individual dimensions of fund operations, thus lacking a holistic understanding of their internal dynamics. Accordingly, the present study aims to fill this gap by developing a comprehensive, systematic framework that elucidates the internal challenges affecting Qard al-Hasan funds in Iran. The core objective is to identify, classify, and interpret these challenges by drawing upon qualitative insights from experts and practitioners deeply engaged in the operation and oversight of these funds. By adopting a thematic analysis methodology, this study goes beyond isolated observations and moves toward theory-building. The research contributes both conceptually and practically: conceptually, by establishing a structured thematic network that integrates previously fragmented discussions; and practically, by offering a diagnostic foundation that policymakers, supervisory institutions, and fund managers can utilize for strategic planning and institutional reform.
2. Methods and MaterialsThis research is applied in nature and employs a qualitative methodology suited to exploring complex, socially embedded organizational phenomena. The primary research strategy is thematic analysis, which enables the identification and interpretation of recurrent patterns of meaning within qualitative data. The study population consists of two primary groups: (1) academic experts and researchers specializing in Islamic finance, microfinance, and non-profit financial systems; and (2) executive practitioners, including managers, board members, and operational staff of Qard al-Hasan funds across various Iranian regions. A snowball sampling technique was employed to recruit participants due to the specialized and dispersed nature of the expert community. Ultimately, in-depth semi-structured interviews were conducted with 12 academic experts and 31 fund executives, resulting in a total sample of 44 participants. The interviews were audio-recorded, transcribed verbatim, and analyzed using MAXQDA qualitative data analysis software. Following the six-phase thematic analysis framework proposed by Braun and Clarke (2006), the analysis progressed through iterative stages: (1) Familiarization with the data, (2) Generating initial codes, (3) Searching for themes, (4) Reviewing themes, (5) Defining and naming themes, and (6) Constructing the thematic narrative. This process initially produced 229 open codes, which were compared, condensed, and refined to avoid redundancy and ensure conceptual clarity. The codes were then synthesized into 138 basic themes, which were subsequently clustered into 31 organizing themes based on conceptual and functional relationships. Finally, these organizing themes were integrated into six overarching global themes, which constitute the core dimensions of the internal challenges facing Qard al-Hasan funds. A thematic network was constructed to visually represent the hierarchical and relational structure of these findings.To enhance validity and interpretive robustness, the preliminary thematic network was reviewed through a focused expert panel (focus group) consisting of nine individuals drawn from both academic and executive backgrounds. The aim was to ensure credibility, consistency, and contextual appropriateness of the thematic categories.
3. Research FindingsThe thematic analysis revealed that internal organizational challenges of Qard al-Hasan funds can be categorized into six global themes, each encompassing multiple organizing and basic themes:(1) Resource AllocationChallenges include inadequate credit assessment mechanisms, reliance on informal guarantor networks, insufficient collateral validation, and rising rates of loan default. Macroeconomic conditions—particularly inflation and declining purchasing power—further erode the real value of loans and intensify liquidity pressures.(2) Organizational Structure and ManagementWeaknesses in managerial capacity, lack of professional financial expertise, limited managerial diversity, resistance to modernization, and traditional governance models impede strategic development. Social and cultural shifts have also weakened the public legitimacy and perceived effectiveness of these funds.(3) Resource MobilizationLiquidity instability, dependency on voluntary deposits, competitive pressures from banks and fintech platforms, absence of diversified funding instruments, and restrictive regulatory constraints hinder the sustainable accumulation of loanable resources.(4) Accounting Software and Technological SystemsMany funds use outdated or non-integrated accounting systems, lack standardized financial reporting modules, face high software dependence risks, and are excluded from national payment networks and credit evaluation systems.(5) Revenue Generation and Cost CoverageThe inherent non-profit nature of Qard al-Hasan lending limits acceptable revenue models. Reliance on low administrative fees fails to offset operational costs; inflation intensifies cost burdens; and inefficiencies in loan recovery exacerbate financial strain.(6) Reporting and CommunicationWeak transparency, irregular financial reporting, limited public communication channels, and regulatory constraints on publishing operational information contribute to declining trust among members and stakeholders.
4. Discussion and ConclusionThe findings highlight that the sustainability and expanding role of Qard al-Hasan funds in Islamic microfinance are contingent on pursuing multidimensional organizational reform. These reforms must include:- Implementing standardized credit and risk evaluation frameworks, modernizing management structures and professional training systems,- Diversifying resource mobilization strategies through legally permissible financial instruments,- Integrating technological infrastructure and connecting funds to national financial networks,- Adopting transparent reporting mechanisms to restore public trust, and- Developing Sharia-compliant cost-recovery models to ensure financial viability.The thematic framework developed in this study provides a structured analytical foundation for policymakers, regulators, and fund administrators to design targeted interventions aimed at enhancing the operational resilience and social effectiveness of Qard al-Hasan funds. Future research may build on these findings by developing quantitative assessment models, designing pilot governance reforms, or examining the comparative performance of funds across different organizational typologies.1. Introduction and ObjectiveQard al-Hasan funds constitute a foundational pillar within the Islamic financial system, particularly in the domain of microfinance where they function as socially oriented, non-profit financial intermediaries. These funds aim to provide interest-free loans with the objective of alleviating financial hardship, enhancing social welfare, and supporting low-income and financially excluded populations. Historically rooted in religious, cultural, and community-based traditions, Qard al-Hasan funds in Iran have long served as instruments for promoting social solidarity and distributive justice. Despite their vital role in expanding financial inclusion and contributing to socio-economic stability, there is growing evidence that their operational effectiveness has been diminished by a range of structural, managerial, financial, technological, and regulatory constraints. While scattered studies have addressed particular challenges of Qard al-Hasan funds—such as governance issues, liquidity constraints, weak resource mobilization, or deficiencies in accountability—there remains a gap in systematically identifying and categorizing the internal organizational challenges these funds face. Most previous research has tended to be either descriptive or narrowly focused on individual dimensions of fund operations, thus lacking a holistic understanding of their internal dynamics. Accordingly, the present study aims to fill this gap by developing a comprehensive, systematic framework that elucidates the internal challenges affecting Qard al-Hasan funds in Iran. The core objective is to identify, classify, and interpret these challenges by drawing upon qualitative insights from experts and practitioners deeply engaged in the operation and oversight of these funds. By adopting a thematic analysis methodology, this study goes beyond isolated observations and moves toward theory-building. The research contributes both conceptually and practically: conceptually, by establishing a structured thematic network that integrates previously fragmented discussions; and practically, by offering a diagnostic foundation that policymakers, supervisory institutions, and fund managers can utilize for strategic planning and institutional reform.
2. Methods and MaterialsThis research is applied in nature and employs a qualitative methodology suited to exploring complex, socially embedded organizational phenomena. The primary research strategy is thematic analysis, which enables the identification and interpretation of recurrent patterns of meaning within qualitative data. The study population consists of two primary groups: (1) academic experts and researchers specializing in Islamic finance, microfinance, and non-profit financial systems; and (2) executive practitioners, including managers, board members, and operational staff of Qard al-Hasan funds across various Iranian regions. A snowball sampling technique was employed to recruit participants due to the specialized and dispersed nature of the expert community. Ultimately, in-depth semi-structured interviews were conducted with 12 academic experts and 31 fund executives, resulting in a total sample of 44 participants. The interviews were audio-recorded, transcribed verbatim, and analyzed using MAXQDA qualitative data analysis software. Following the six-phase thematic analysis framework proposed by Braun and Clarke (2006), the analysis progressed through iterative stages: (1) Familiarization with the data, (2) Generating initial codes, (3) Searching for themes, (4) Reviewing themes, (5) Defining and naming themes, and (6) Constructing the thematic narrative. This process initially produced 229 open codes, which were compared, condensed, and refined to avoid redundancy and ensure conceptual clarity. The codes were then synthesized into 138 basic themes, which were subsequently clustered into 31 organizing themes based on conceptual and functional relationships. Finally, these organizing themes were integrated into six overarching global themes, which constitute the core dimensions of the internal challenges facing Qard al-Hasan funds. A thematic network was constructed to visually represent the hierarchical and relational structure of these findings.To enhance validity and interpretive robustness, the preliminary thematic network was reviewed through a focused expert panel (focus group) consisting of nine individuals drawn from both academic and executive backgrounds. The aim was to ensure credibility, consistency, and contextual appropriateness of the thematic categories.
3. Research FindingsThe thematic analysis revealed that internal organizational challenges of Qard al-Hasan funds can be categorized into six global themes, each encompassing multiple organizing and basic themes:(1) Resource AllocationChallenges include inadequate credit assessment mechanisms, reliance on informal guarantor networks, insufficient collateral validation, and rising rates of loan default. Macroeconomic conditions—particularly inflation and declining purchasing power—further erode the real value of loans and intensify liquidity pressures.(2) Organizational Structure and ManagementWeaknesses in managerial capacity, lack of professional financial expertise, limited managerial diversity, resistance to modernization, and traditional governance models impede strategic development. Social and cultural shifts have also weakened the public legitimacy and perceived effectiveness of these funds.(3) Resource MobilizationLiquidity instability, dependency on voluntary deposits, competitive pressures from banks and fintech platforms, absence of diversified funding instruments, and restrictive regulatory constraints hinder the sustainable accumulation of loanable resources.(4) Accounting Software and Technological SystemsMany funds use outdated or non-integrated accounting systems, lack standardized financial reporting modules, face high software dependence risks, and are excluded from national payment networks and credit evaluation systems.(5) Revenue Generation and Cost CoverageThe inherent non-profit nature of Qard al-Hasan lending limits acceptable revenue models. Reliance on low administrative fees fails to offset operational costs; inflation intensifies cost burdens; and inefficiencies in loan recovery exacerbate financial strain.(6) Reporting and CommunicationWeak transparency, irregular financial reporting, limited public communication channels, and regulatory constraints on publishing operational information contribute to declining trust among members and stakeholders.
4. Discussion and ConclusionThe findings highlight that the sustainability and expanding role of Qard al-Hasan funds in Islamic microfinance are contingent on pursuing multidimensional organizational reform. These reforms must include:- Implementing standardized credit and risk evaluation frameworks, modernizing management structures and professional training systems,- Diversifying resource mobilization strategies through legally permissible financial instruments,- Integrating technological infrastructure and connecting funds to national financial networks,- Adopting transparent reporting mechanisms to restore public trust, and- Developing Sharia-compliant cost-recovery models to ensure financial viability.The thematic framework developed in this study provides a structured analytical foundation for policymakers, regulators, and fund administrators to design targeted interventions aimed at enhancing the operational resilience and social effectiveness of Qard al-Hasan funds. Future research may build on these findings by developing quantitative assessment models, designing pilot governance reforms, or examining the comparative performance of funds across different organizational typologies.https://ifr.isu.ac.ir/article_77830_3f1f477b13ae93243c16cc90e518ee09.pdfImam Sadiq University"Islamic Finance Research" (IFR)2251-829014420250719Critical analysis of Shahid Motahari's theory on "The legitimacy of usury in banking activities"Critical analysis of Shahid Motahari's theory on "The legitimacy of usury in banking activities"7237547786010.30497/ifr.2025.247727.1948FASaeidNazari TavakkoliProfessor, Department of Jurisprudence & the Essentials of the Islamic Law, Faculty of Theology and Islamic Studies, University of Tehran, Tehran, Iran0000-0002-6398-521XMohammadZobdehPhD student in Jurisprudence & the Essentials of the Islamic Law, Faculty of Theology and Islamic Studies, University of Tehran, Tehran, Iran, and visiting lecturer at Bozorgmehr University0000-0003-1329-0927Journal Article202502101. Introduction and ObjectiveThe modern banking system, as a cornerstone of the capitalist economy, functions primarily on the principle of interest-based financial intermediation. Through accepting deposits and extending loans, banks mobilize idle funds, convert them into productive capital, and stimulate economic growth. This financial mechanism—though economically efficient—raises profound jurisprudential and ethical concerns when examined through the lens of Islamic law (fiqh al-muʿāmalāt), where the payment or receipt of interest is often equated with ribā (usury). In the Islamic worldview, ribā represents one of the gravest transgressions against divine economic justice. The Qur’an explicitly condemns it—“O you who believe, fear Allah and give up what remains of usury if you are believers” (al-Baqara, 2:278)—and classical jurists have enumerated its prohibition as one of the fundamental necessities (ḍarūriyyāt) of the faith. Despite this textual clarity, the integration of modern banking practices into Islamic economies has reignited debates concerning whether ribā applies universally to all forms of financial increase (ziyādah) or whether certain institutional contexts, such as state-owned banking, fall outside its scope. This study specifically addresses the critical question: Does the Qur’anic and jurisprudential prohibition of ribā apply exclusively to financial relationships between natural persons, or does it also encompass transactions between banks (as legal entities) and their clients, including state or public financial institutions?The research explores this question through the lens of Shahid Murtaza Motahhari’s interpretive approach, which attempts to reconcile the economic realities of modern banking with the ethical imperatives of Islamic jurisprudence. Motahhari proposed that ribā derived from state-owned banking operations may not fall under the Qur’anic prohibition, as the profit generated is ultimately reinvested in the collective welfare of society. This perspective represents a significant jurisprudential deviation from the classical position, which deems all forms of ribā al-qarḍ (usurious loan contracts) categorically impermissible. The objective of this research is therefore twofold: (1) to systematically examine the theoretical and textual foundations of Motahhari’s reasoning regarding the permissibility of state bank interest; and (2) to evaluate the jurisprudential validity of his argument through an analytical study of Qur’anic evidence, Prophetic traditions, and the principles of uṣūl al-fiqh (legal theory).
2. Methods and MaterialsThe research adopts a descriptive–analytical methodology, combining textual exegesis, comparative jurisprudence, and analytical reasoning. The methodological framework involves three primary components: Textual Analysis of Foundational Sources: The study draws upon Qur’anic verses (especially al-Baqara 275–279 and Āl ʿImrān 130), ḥadīth literature, and the exegetical interpretations of classical jurists such as al-Ṭūsī, al-ʿAllāmah al-Ḥillī, al-Shahīd al-Thānī, al-Khūʾī, and others. The goal is to determine the linguistic and contextual scope (ʿumūm wa khuṣūṣ) of the term ribā and assess whether the prohibition can be limited to particular agents or contexts. Analytical Evaluation of Jurisprudential Positions: The arguments of contemporary and premodern jurists are systematically reviewed, focusing on three interpretive dimensions: (a) whether the prohibition of ribā extends to legal persons (banks, states, institutions); (b) whether public welfare (maṣlaḥa ʿāmma) can constitute a valid justification for exceptions; and (c) whether ilghāʾ al-khuṣūṣiyya (removal of specific contextual limitations) can legitimately exempt banking interest from the general ruling of prohibition. Critical Appraisal of Motahhari’s Theory: Motahhari’s twofold reasoning—(i) the restriction of ribā to private capital and (ii) the removal of specificity (ilghāʾ al-khuṣūṣiyya) from established exemptions—is subjected to a critical analysis based on the principles of uṣūl al-fiqh. His argument is contrasted with the prevailing consensus (ijmāʿ) of Shi‘i and Sunni scholars to assess its coherence, consistency, and textual grounding. The study relies entirely on library-based research, using classical Arabic and Persian legal sources, as well as modern economic and banking literature, to bridge jurisprudential theory and financial practice. The analysis emphasizes objectivity, textual authenticity, and methodological transparency to ensure reproducibility and scholarly rigor.
3. Research FindingsThe investigation reveals that Shahid Motahhari’s theory rests on two principal claims: (1) Restriction of Ribā to Private Capital: Motahhari argues that the ʿilla (effective cause) of ribā lies in the exploitation inherent in private usurious transactions, wherein one individual unjustly profits from another’s financial hardship. In contrast, he suggests that when the lender is the state or a public institution, the revenue obtained from interest-bearing loans returns to society through redistribution mechanisms such as public spending, infrastructure development, and welfare programs. Consequently, the element of injustice (ẓulm)—which he interprets as the underlying rationale of the prohibition—is absent in this context. (2) Application of Ilghāʾ al-Khuṣūṣiyya (Removal of Specificity): Motahhari further argues that the specific exemptions to ribā recognized in classical jurisprudence—such as transactions between a father and son, husband and wife, or Muslim and kāfir ḥarbī—demonstrate the elasticity of the prohibition in contexts where exploitation is absent. By extending the same reasoning through ilghāʾ al-khuṣūṣiyya, he posits that bank interest, particularly in state-run institutions, may also be exempted from prohibition, as it serves the public good and does not contravene the moral spirit of the Qur’anic injunction. However, the analytical examination conducted in this study challenges both foundations of Motahhari’s reasoning. First, limiting ribā to private capital lacks explicit textual support; the Qur’anic verses prohibiting ribā are expressed in absolute terms and do not distinguish between private and collective entities. Second, ilghāʾ al-khuṣūṣiyya—to be valid in uṣūl al-fiqh—must be grounded in ʿurf (customary understanding) and a clear conceptual congruence between the cause and the ruling (tanāsub al-ḥukm wa-l-mawḍūʿ). Motahhari’s application of this principle, however, relies primarily on subjective reasoning (istihsān) rather than a demonstrable linguistic or juristic equivalence. Furthermore, the study identifies no valid qarīna (corroborating indication) in either scriptural or rational sources to suggest that charging interest by state banks qualifies as a maṣlaḥa ʿāmma (public welfare) exception. On the contrary, most contemporary jurists—both in the Shīʿī and Sunnī traditions—affirm the universal applicability of ribā’s prohibition, irrespective of the borrower’s or lender’s legal personality. Accordingly, the findings support the classical position that the essence of ribā (ziyāda bilā ʿiwaḍ, “increase without equivalent exchange”) determines its illegality, not the identity of the contracting parties. Thus, the interest-based transactions of both private and public banks fall within the scope of the Qur’anic prohibition.
4. Discussion and ConclusionThe analysis leads to several significant jurisprudential conclusions: (1) Universality of the Prohibition: The Qur’anic injunction against ribā—expressed in verses such as “Allah has permitted trade and forbidden usury” (al-Baqara 2:275) and “Allah obliterates usury and nourishes charities” (2:276)—is comprehensive and absolute. It encompasses every form of financial increase unaccompanied by real economic exchange, without differentiating between individuals, corporations, or state entities. The textual ʿumūm (generality) of these verses nullifies attempts to restrict the ruling to private transactions. (2) Irrelevance of Legal Personality: From a jurisprudential standpoint, legal personality (shakhṣiyyat ḥuqūqiyya) does not alter the nature of a contractual act. A loan contract (ʿaqd al-qarḍ) remains identical in its legal essence whether executed by a private individual or a public institution. Hence, if an increase (ziyādah) is stipulated as a condition for repayment, it constitutes ribā al-qarḍ regardless of the lender’s identity. (3) Inadmissibility of Welfare-Based Exceptions: Arguments appealing to public interest or economic necessity cannot override an explicit Qur’anic prohibition unless supported by decisive evidence. The claim that bank interest serves collective welfare lacks empirical substantiation and fails the juristic test of maṣlaḥa muʿtabara—a recognized, textually grounded public interest. (4) Invalidity of Ilghāʾ al-Khuṣūṣiyya as Applied by Motahhari: The principle of removing specificity can only operate where a rational or customary parity exists between the stated and proposed cases. Motahhari’s analogy between intra-familial ribā exemptions and state-bank transactions lacks such parity and therefore does not meet the criteria of legitimate ilghāʾ al-khuṣūṣiyya. (5) Consequent Jurisprudential Implication: Based on the above reasoning, bank interest—whether in private, public, or governmental institutions—constitutes a prohibited form of ribā al-qarḍ. Any claim of permissibility would require new, explicit textual or juristic authorization, which is currently absent in both Sunni and Shīʿī legal corpora. In conclusion, this research reaffirms the universality and immutability of the Qur’anic prohibition of ribā. Attempts to justify interest-based banking within Islamic jurisprudence through analogical reasoning or welfare-based exceptions remain methodologically and textually unsound. Consequently, Islamic finance frameworks must seek alternative, non-usurious models—such as profit–loss sharing, partnership contracts (mushārakah, muḍārabah), and asset-backed transactions (murābaḥah, ijārah)—to ensure conformity with both the letter and spirit of Islamic law.1. Introduction and ObjectiveThe modern banking system, as a cornerstone of the capitalist economy, functions primarily on the principle of interest-based financial intermediation. Through accepting deposits and extending loans, banks mobilize idle funds, convert them into productive capital, and stimulate economic growth. This financial mechanism—though economically efficient—raises profound jurisprudential and ethical concerns when examined through the lens of Islamic law (fiqh al-muʿāmalāt), where the payment or receipt of interest is often equated with ribā (usury). In the Islamic worldview, ribā represents one of the gravest transgressions against divine economic justice. The Qur’an explicitly condemns it—“O you who believe, fear Allah and give up what remains of usury if you are believers” (al-Baqara, 2:278)—and classical jurists have enumerated its prohibition as one of the fundamental necessities (ḍarūriyyāt) of the faith. Despite this textual clarity, the integration of modern banking practices into Islamic economies has reignited debates concerning whether ribā applies universally to all forms of financial increase (ziyādah) or whether certain institutional contexts, such as state-owned banking, fall outside its scope. This study specifically addresses the critical question: Does the Qur’anic and jurisprudential prohibition of ribā apply exclusively to financial relationships between natural persons, or does it also encompass transactions between banks (as legal entities) and their clients, including state or public financial institutions?The research explores this question through the lens of Shahid Murtaza Motahhari’s interpretive approach, which attempts to reconcile the economic realities of modern banking with the ethical imperatives of Islamic jurisprudence. Motahhari proposed that ribā derived from state-owned banking operations may not fall under the Qur’anic prohibition, as the profit generated is ultimately reinvested in the collective welfare of society. This perspective represents a significant jurisprudential deviation from the classical position, which deems all forms of ribā al-qarḍ (usurious loan contracts) categorically impermissible. The objective of this research is therefore twofold: (1) to systematically examine the theoretical and textual foundations of Motahhari’s reasoning regarding the permissibility of state bank interest; and (2) to evaluate the jurisprudential validity of his argument through an analytical study of Qur’anic evidence, Prophetic traditions, and the principles of uṣūl al-fiqh (legal theory).
2. Methods and MaterialsThe research adopts a descriptive–analytical methodology, combining textual exegesis, comparative jurisprudence, and analytical reasoning. The methodological framework involves three primary components: Textual Analysis of Foundational Sources: The study draws upon Qur’anic verses (especially al-Baqara 275–279 and Āl ʿImrān 130), ḥadīth literature, and the exegetical interpretations of classical jurists such as al-Ṭūsī, al-ʿAllāmah al-Ḥillī, al-Shahīd al-Thānī, al-Khūʾī, and others. The goal is to determine the linguistic and contextual scope (ʿumūm wa khuṣūṣ) of the term ribā and assess whether the prohibition can be limited to particular agents or contexts. Analytical Evaluation of Jurisprudential Positions: The arguments of contemporary and premodern jurists are systematically reviewed, focusing on three interpretive dimensions: (a) whether the prohibition of ribā extends to legal persons (banks, states, institutions); (b) whether public welfare (maṣlaḥa ʿāmma) can constitute a valid justification for exceptions; and (c) whether ilghāʾ al-khuṣūṣiyya (removal of specific contextual limitations) can legitimately exempt banking interest from the general ruling of prohibition. Critical Appraisal of Motahhari’s Theory: Motahhari’s twofold reasoning—(i) the restriction of ribā to private capital and (ii) the removal of specificity (ilghāʾ al-khuṣūṣiyya) from established exemptions—is subjected to a critical analysis based on the principles of uṣūl al-fiqh. His argument is contrasted with the prevailing consensus (ijmāʿ) of Shi‘i and Sunni scholars to assess its coherence, consistency, and textual grounding. The study relies entirely on library-based research, using classical Arabic and Persian legal sources, as well as modern economic and banking literature, to bridge jurisprudential theory and financial practice. The analysis emphasizes objectivity, textual authenticity, and methodological transparency to ensure reproducibility and scholarly rigor.
3. Research FindingsThe investigation reveals that Shahid Motahhari’s theory rests on two principal claims: (1) Restriction of Ribā to Private Capital: Motahhari argues that the ʿilla (effective cause) of ribā lies in the exploitation inherent in private usurious transactions, wherein one individual unjustly profits from another’s financial hardship. In contrast, he suggests that when the lender is the state or a public institution, the revenue obtained from interest-bearing loans returns to society through redistribution mechanisms such as public spending, infrastructure development, and welfare programs. Consequently, the element of injustice (ẓulm)—which he interprets as the underlying rationale of the prohibition—is absent in this context. (2) Application of Ilghāʾ al-Khuṣūṣiyya (Removal of Specificity): Motahhari further argues that the specific exemptions to ribā recognized in classical jurisprudence—such as transactions between a father and son, husband and wife, or Muslim and kāfir ḥarbī—demonstrate the elasticity of the prohibition in contexts where exploitation is absent. By extending the same reasoning through ilghāʾ al-khuṣūṣiyya, he posits that bank interest, particularly in state-run institutions, may also be exempted from prohibition, as it serves the public good and does not contravene the moral spirit of the Qur’anic injunction. However, the analytical examination conducted in this study challenges both foundations of Motahhari’s reasoning. First, limiting ribā to private capital lacks explicit textual support; the Qur’anic verses prohibiting ribā are expressed in absolute terms and do not distinguish between private and collective entities. Second, ilghāʾ al-khuṣūṣiyya—to be valid in uṣūl al-fiqh—must be grounded in ʿurf (customary understanding) and a clear conceptual congruence between the cause and the ruling (tanāsub al-ḥukm wa-l-mawḍūʿ). Motahhari’s application of this principle, however, relies primarily on subjective reasoning (istihsān) rather than a demonstrable linguistic or juristic equivalence. Furthermore, the study identifies no valid qarīna (corroborating indication) in either scriptural or rational sources to suggest that charging interest by state banks qualifies as a maṣlaḥa ʿāmma (public welfare) exception. On the contrary, most contemporary jurists—both in the Shīʿī and Sunnī traditions—affirm the universal applicability of ribā’s prohibition, irrespective of the borrower’s or lender’s legal personality. Accordingly, the findings support the classical position that the essence of ribā (ziyāda bilā ʿiwaḍ, “increase without equivalent exchange”) determines its illegality, not the identity of the contracting parties. Thus, the interest-based transactions of both private and public banks fall within the scope of the Qur’anic prohibition.
4. Discussion and ConclusionThe analysis leads to several significant jurisprudential conclusions: (1) Universality of the Prohibition: The Qur’anic injunction against ribā—expressed in verses such as “Allah has permitted trade and forbidden usury” (al-Baqara 2:275) and “Allah obliterates usury and nourishes charities” (2:276)—is comprehensive and absolute. It encompasses every form of financial increase unaccompanied by real economic exchange, without differentiating between individuals, corporations, or state entities. The textual ʿumūm (generality) of these verses nullifies attempts to restrict the ruling to private transactions. (2) Irrelevance of Legal Personality: From a jurisprudential standpoint, legal personality (shakhṣiyyat ḥuqūqiyya) does not alter the nature of a contractual act. A loan contract (ʿaqd al-qarḍ) remains identical in its legal essence whether executed by a private individual or a public institution. Hence, if an increase (ziyādah) is stipulated as a condition for repayment, it constitutes ribā al-qarḍ regardless of the lender’s identity. (3) Inadmissibility of Welfare-Based Exceptions: Arguments appealing to public interest or economic necessity cannot override an explicit Qur’anic prohibition unless supported by decisive evidence. The claim that bank interest serves collective welfare lacks empirical substantiation and fails the juristic test of maṣlaḥa muʿtabara—a recognized, textually grounded public interest. (4) Invalidity of Ilghāʾ al-Khuṣūṣiyya as Applied by Motahhari: The principle of removing specificity can only operate where a rational or customary parity exists between the stated and proposed cases. Motahhari’s analogy between intra-familial ribā exemptions and state-bank transactions lacks such parity and therefore does not meet the criteria of legitimate ilghāʾ al-khuṣūṣiyya. (5) Consequent Jurisprudential Implication: Based on the above reasoning, bank interest—whether in private, public, or governmental institutions—constitutes a prohibited form of ribā al-qarḍ. Any claim of permissibility would require new, explicit textual or juristic authorization, which is currently absent in both Sunni and Shīʿī legal corpora. In conclusion, this research reaffirms the universality and immutability of the Qur’anic prohibition of ribā. Attempts to justify interest-based banking within Islamic jurisprudence through analogical reasoning or welfare-based exceptions remain methodologically and textually unsound. Consequently, Islamic finance frameworks must seek alternative, non-usurious models—such as profit–loss sharing, partnership contracts (mushārakah, muḍārabah), and asset-backed transactions (murābaḥah, ijārah)—to ensure conformity with both the letter and spirit of Islamic law.https://ifr.isu.ac.ir/article_77860_5d20d65a71905c0943f4c863b91edbd0.pdfImam Sadiq University"Islamic Finance Research" (IFR)2251-829014420250709A Jurisprudential Analysis of Initial Public Offerings through Special Purpose Acquisition Companies (SPACs) in Iran's Capital MarketA Jurisprudential Analysis of Initial Public Offerings through Special Purpose Acquisition Companies (SPACs) in Iran's Capital Market7557947783110.30497/ifr.2025.248181.1964FAAliAmirshahiPhD Student Financial Engineering, Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabatabaei, Tehran, Iran0009-0008-8928-0438MohammadTohidiAssociate Professor, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran0000-0002-1289-1256MahdiJamjahM.A. Student Financial Management, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran0009-0001-5330-8186Journal Article202505131. Introduction and ObjectiveIn recent years, Special Purpose Acquisition Companies (SPACs) have become one of the most innovative financial mechanisms for facilitating the public listing of private companies. Globally, they serve as fast, flexible, and cost-efficient alternatives to traditional Initial Public Offerings (IPOs). A SPAC is a corporate shell formed exclusively to raise public capital through an IPO and, within a predefined period—typically 18 to 24 months—to merge with or acquire a target private company. After the merger, the target company effectively becomes publicly traded, thus circumventing the complex procedures and high costs associated with conventional IPOs. The international success of SPACs, particularly in markets such as the United States, Singapore, and Europe, has prompted interest in their potential adaptation to emerging markets. In Iran, where financial innovation must operate within the Shariah-compliant framework of the Islamic Republic’s capital market, the introduction of such instruments demands rigorous jurisprudential (fiqh-based) assessment. While SPACs could enhance financial inclusion, deepen capital markets, and provide new financing avenues for non-listed and production-oriented firms, their hybrid structure raises questions regarding conformity with Islamic legal principles — including the prohibition of riba (usury), gharar (excessive uncertainty), qimar (gambling), ghabn (unjust enrichment), and akl al-mal bil-batil (unjust acquisition of wealth). This study therefore pursues a twofold objective: (1) to analyze the compatibility of SPACs with the fundamental rules of Islamic jurisprudence (fiqh al-mu‘amalat); and (2) to evaluate the feasibility of implementing SPACs in Iran’s capital market as a legitimate and operationally viable financial mechanism. By bridging modern financial innovation with classical Islamic legal thought, the research seeks to contribute to the development of Shariah-compliant models for capital market instruments capable of enhancing both market depth and real-sector financing.
2. Methods and MaterialsThe study adopts a qualitative, multi-stage, and applied research design, integrating library analysis, focus-group validation, and expert field surveys. The research unfolds through the following methodological stages:(1) Doctrinal Analysis of Primary Sources: Classical jurisprudential sources—including the Qur’an, Sunnah, and major Shi‘a jurists’ works such as those of al-Tusi, al-Ansari, al-Khoei, and Imam Khomeini—were examined to extract general Shariah principles governing contracts (‘uqud) and financial transactions (mu‘amalat). The principles of contract validity (sihhah al-‘uqud), binding nature (luzum al-‘uqud), and the five prohibitions (usury, gharar, qimar, darar, and akl al-mal bil-batil) served as the analytical framework.(2) Extraction and Structuring of Jurisprudential Indicators: Through textual analysis and inductive reasoning, the study derived a set of Shariah compliance indicators relevant to SPAC operations—covering the nature of capital subscription, use of escrow accounts, the contractual role of the sponsor, voting and redemption rights of investors, and post-merger equity conversion.(3) Focus Group Discussions: These indicators were refined and validated through a focus group consisting of experts in Islamic jurisprudence and Islamic finance. The session functioned not as a decision-making platform but as a structured qualitative forum to achieve conceptual convergence on the indicators’ adequacy and operational relevance for Iran’s regulatory context.(4) Field Survey and Empirical Validation: A specialized questionnaire was designed based on the finalized indicators. It was distributed among 26 experts—comprising university professors, Islamic finance researchers, and jurists associated with Iranian regulatory and academic institutions. The responses were analyzed using descriptive statistical methods to assess th3.e degree of scholarly consensus regarding each jurisprudential criterion. This multi-stage method ensures methodological triangulation—linking textual jurisprudence, expert interpretation, and empirical validation—to provide a robust feasibility framework for Shariah-compliant SPAC implementation.
3. Research Findings3-1. Compliance with General Contractual Principles: The findings demonstrate that SPAC operations align with the principle of contractual validity (asālat al-sihhah) and binding obligation (asālat al-luzum). Since capital contributions occur with mutual consent, under clearly defined terms, and within a legally recognized corporate structure, no element of invalidity or coercion arises. The sponsor’s authority to manage investor funds is grounded in an explicit wakālah (agency) contract, rendering its actions legitimate within Islamic law.3-2. Prohibition of Unjust Enrichment (Akl al-Mal bil-Batil): The study found that SPAC transactions do not involve unlawful possession of others’ property. Investor funds are maintained in segregated escrow accounts and can only be utilized within the contractual and regulatory framework. In the event of an unsuccessful merger, the principal and accrued lawful returns are refunded. Hence, no unjust or unauthorized enrichment occurs.3-3. Prohibition of Gharar (Uncertainty): Although SPACs initially lack a defined target company—potentially implying gharar—the research shows that this uncertainty is mitigated through structured mechanisms: disclosure in the prospectus, the right of investors to redeem shares prior to merger completion, obligatory shareholder voting, and post-merger transparency. Because the sponsor acts under an explicit wakālah mandate, the temporary indeterminacy of the target does not invalidate the contract under fiqh al-mu‘amalat.3-4. Prohibition of Riba (Usury): Since investor contributions are not loans but capital subscriptions, the core transaction does not constitute a loan contract. However, potential riba concerns could arise from the interest earned on funds held in escrow. To ensure compliance, experts recommend investing these funds through Islamic short-term financial instruments (such as sukuk or mudarabah deposits), thereby avoiding prohibited interest income.3-6. Prohibition of Darar (Harm) and the Principle of Iqdam (Informed Consent): Possible harms may arise from mismanagement or asymmetric information by the sponsor. Nevertheless, the doctrine of iqdam stipulates that a party knowingly entering a risky yet permissible transaction cannot later claim unjust harm. As SPAC investors are fully informed of the structure, timelines, and risks through public disclosures and voting rights, the transactions remain consistent with both la-darar and iqdam principles.3-6. Prohibition of Qimar (Gambling): SPAC operations do not entail speculative wagering or conditional outcomes based on chance. Investments are made for legitimate economic objectives—namely, acquisition and corporate consolidation—and are thus free from any qimar characteristics.3-7. Juridical Nature of Relationships: The sponsor-investor relationship is a hybrid of agency (wakālah) and partnership (shirkah). Before the merger, the sponsor acts as an agent managing the pooled funds within specified limits; after a successful merger, both sponsor and investors become partners in the newly combined entity. This dual structure aligns with recognized models in Islamic jurisprudence governing modern financial intermediaries.3.8 Expert Consensus: According to the survey analysis:- Approximately 69% of respondents confirmed that SPACs can be implemented without fundamental structural modification.- Around 23% suggested minor procedural adjustments to ensure stricter compliance with Islamic jurisprudence.- Virtually all experts agreed that SPACs do not involve riba, gharar, or akl al-mal bil-batil when appropriate safeguards are in place. Hence, the overall expert consensus supports the Shariah permissibility and practical feasibility of SPACs within Iran’s capital market environment.
4. Discussion and ConclusionThe study substantiates that SPACs—when properly structured—are compatible with the principles of Shi‘a jurisprudence governing financial contracts. Their implementation within Iran’s capital market could serve multiple economic and developmental functions: (1) Enhancement of Financial Depth and Liquidity:: By offering a new pathway for non-listed firms, especially small and knowledge-based enterprises, SPACs can expand market participation and deepen capital formation. (2) Promotion of Transparency and Corporate Governance: Regulatory requirements for disclosure, investor voting, and escrowed funds contribute to more transparent market practices, consistent with Islamic ethics of fairness (‘adl) and accountability (mas’uliyyah). (3) Stimulation of Productive Investment: The structure channels public savings into real-sector companies rather than speculative activities, supporting the Islamic economic objective of linking finance to production. (4) Compatibility with Islamic Finance Infrastructure: When escrowed funds are invested through Islamic money-market instruments and sponsor fees are contractually bound to performance, SPACs harmonize with existing sukuk and equity-based frameworks. However, successful implementation requires comprehensive regulatory adaptation by the Securities and Exchange Organization (SEO) of Iran. Specific guidelines must address the contractual form of the SPAC, investor protection mechanisms, the scope of wakālah, and the permissible investment of idle funds in Shariah-compliant instruments. From a jurisprudential perspective, the SPAC model exemplifies the dynamic capacity of Islamic law to accommodate contemporary financial innovation through contextual ijtihad (legal reasoning). The alignment of SPAC structures with maqasid al-shariah—particularly the preservation of wealth (hifz al-mal) and facilitation of lawful trade (taysir al-tijarah al-halal)—demonstrates that Islamic finance can evolve alongside global capital markets while maintaining doctrinal integrity. In conclusion, the research confirms that SPACs can operate as legitimate, efficient, and Shariah-compliant vehicles for public fundraising and corporate acquisition in Iran’s capital market. With proper regulatory oversight and scholarly supervision, they can bridge the gap between jurisprudential authenticity and financial innovation, contributing significantly to the modernization and ethical robustness of Islamic financial systems.1. Introduction and ObjectiveIn recent years, Special Purpose Acquisition Companies (SPACs) have become one of the most innovative financial mechanisms for facilitating the public listing of private companies. Globally, they serve as fast, flexible, and cost-efficient alternatives to traditional Initial Public Offerings (IPOs). A SPAC is a corporate shell formed exclusively to raise public capital through an IPO and, within a predefined period—typically 18 to 24 months—to merge with or acquire a target private company. After the merger, the target company effectively becomes publicly traded, thus circumventing the complex procedures and high costs associated with conventional IPOs. The international success of SPACs, particularly in markets such as the United States, Singapore, and Europe, has prompted interest in their potential adaptation to emerging markets. In Iran, where financial innovation must operate within the Shariah-compliant framework of the Islamic Republic’s capital market, the introduction of such instruments demands rigorous jurisprudential (fiqh-based) assessment. While SPACs could enhance financial inclusion, deepen capital markets, and provide new financing avenues for non-listed and production-oriented firms, their hybrid structure raises questions regarding conformity with Islamic legal principles — including the prohibition of riba (usury), gharar (excessive uncertainty), qimar (gambling), ghabn (unjust enrichment), and akl al-mal bil-batil (unjust acquisition of wealth). This study therefore pursues a twofold objective: (1) to analyze the compatibility of SPACs with the fundamental rules of Islamic jurisprudence (fiqh al-mu‘amalat); and (2) to evaluate the feasibility of implementing SPACs in Iran’s capital market as a legitimate and operationally viable financial mechanism. By bridging modern financial innovation with classical Islamic legal thought, the research seeks to contribute to the development of Shariah-compliant models for capital market instruments capable of enhancing both market depth and real-sector financing.
2. Methods and MaterialsThe study adopts a qualitative, multi-stage, and applied research design, integrating library analysis, focus-group validation, and expert field surveys. The research unfolds through the following methodological stages:(1) Doctrinal Analysis of Primary Sources: Classical jurisprudential sources—including the Qur’an, Sunnah, and major Shi‘a jurists’ works such as those of al-Tusi, al-Ansari, al-Khoei, and Imam Khomeini—were examined to extract general Shariah principles governing contracts (‘uqud) and financial transactions (mu‘amalat). The principles of contract validity (sihhah al-‘uqud), binding nature (luzum al-‘uqud), and the five prohibitions (usury, gharar, qimar, darar, and akl al-mal bil-batil) served as the analytical framework.(2) Extraction and Structuring of Jurisprudential Indicators: Through textual analysis and inductive reasoning, the study derived a set of Shariah compliance indicators relevant to SPAC operations—covering the nature of capital subscription, use of escrow accounts, the contractual role of the sponsor, voting and redemption rights of investors, and post-merger equity conversion.(3) Focus Group Discussions: These indicators were refined and validated through a focus group consisting of experts in Islamic jurisprudence and Islamic finance. The session functioned not as a decision-making platform but as a structured qualitative forum to achieve conceptual convergence on the indicators’ adequacy and operational relevance for Iran’s regulatory context.(4) Field Survey and Empirical Validation: A specialized questionnaire was designed based on the finalized indicators. It was distributed among 26 experts—comprising university professors, Islamic finance researchers, and jurists associated with Iranian regulatory and academic institutions. The responses were analyzed using descriptive statistical methods to assess th3.e degree of scholarly consensus regarding each jurisprudential criterion. This multi-stage method ensures methodological triangulation—linking textual jurisprudence, expert interpretation, and empirical validation—to provide a robust feasibility framework for Shariah-compliant SPAC implementation.
3. Research Findings3-1. Compliance with General Contractual Principles: The findings demonstrate that SPAC operations align with the principle of contractual validity (asālat al-sihhah) and binding obligation (asālat al-luzum). Since capital contributions occur with mutual consent, under clearly defined terms, and within a legally recognized corporate structure, no element of invalidity or coercion arises. The sponsor’s authority to manage investor funds is grounded in an explicit wakālah (agency) contract, rendering its actions legitimate within Islamic law.3-2. Prohibition of Unjust Enrichment (Akl al-Mal bil-Batil): The study found that SPAC transactions do not involve unlawful possession of others’ property. Investor funds are maintained in segregated escrow accounts and can only be utilized within the contractual and regulatory framework. In the event of an unsuccessful merger, the principal and accrued lawful returns are refunded. Hence, no unjust or unauthorized enrichment occurs.3-3. Prohibition of Gharar (Uncertainty): Although SPACs initially lack a defined target company—potentially implying gharar—the research shows that this uncertainty is mitigated through structured mechanisms: disclosure in the prospectus, the right of investors to redeem shares prior to merger completion, obligatory shareholder voting, and post-merger transparency. Because the sponsor acts under an explicit wakālah mandate, the temporary indeterminacy of the target does not invalidate the contract under fiqh al-mu‘amalat.3-4. Prohibition of Riba (Usury): Since investor contributions are not loans but capital subscriptions, the core transaction does not constitute a loan contract. However, potential riba concerns could arise from the interest earned on funds held in escrow. To ensure compliance, experts recommend investing these funds through Islamic short-term financial instruments (such as sukuk or mudarabah deposits), thereby avoiding prohibited interest income.3-6. Prohibition of Darar (Harm) and the Principle of Iqdam (Informed Consent): Possible harms may arise from mismanagement or asymmetric information by the sponsor. Nevertheless, the doctrine of iqdam stipulates that a party knowingly entering a risky yet permissible transaction cannot later claim unjust harm. As SPAC investors are fully informed of the structure, timelines, and risks through public disclosures and voting rights, the transactions remain consistent with both la-darar and iqdam principles.3-6. Prohibition of Qimar (Gambling): SPAC operations do not entail speculative wagering or conditional outcomes based on chance. Investments are made for legitimate economic objectives—namely, acquisition and corporate consolidation—and are thus free from any qimar characteristics.3-7. Juridical Nature of Relationships: The sponsor-investor relationship is a hybrid of agency (wakālah) and partnership (shirkah). Before the merger, the sponsor acts as an agent managing the pooled funds within specified limits; after a successful merger, both sponsor and investors become partners in the newly combined entity. This dual structure aligns with recognized models in Islamic jurisprudence governing modern financial intermediaries.3.8 Expert Consensus: According to the survey analysis:- Approximately 69% of respondents confirmed that SPACs can be implemented without fundamental structural modification.- Around 23% suggested minor procedural adjustments to ensure stricter compliance with Islamic jurisprudence.- Virtually all experts agreed that SPACs do not involve riba, gharar, or akl al-mal bil-batil when appropriate safeguards are in place. Hence, the overall expert consensus supports the Shariah permissibility and practical feasibility of SPACs within Iran’s capital market environment.
4. Discussion and ConclusionThe study substantiates that SPACs—when properly structured—are compatible with the principles of Shi‘a jurisprudence governing financial contracts. Their implementation within Iran’s capital market could serve multiple economic and developmental functions: (1) Enhancement of Financial Depth and Liquidity:: By offering a new pathway for non-listed firms, especially small and knowledge-based enterprises, SPACs can expand market participation and deepen capital formation. (2) Promotion of Transparency and Corporate Governance: Regulatory requirements for disclosure, investor voting, and escrowed funds contribute to more transparent market practices, consistent with Islamic ethics of fairness (‘adl) and accountability (mas’uliyyah). (3) Stimulation of Productive Investment: The structure channels public savings into real-sector companies rather than speculative activities, supporting the Islamic economic objective of linking finance to production. (4) Compatibility with Islamic Finance Infrastructure: When escrowed funds are invested through Islamic money-market instruments and sponsor fees are contractually bound to performance, SPACs harmonize with existing sukuk and equity-based frameworks. However, successful implementation requires comprehensive regulatory adaptation by the Securities and Exchange Organization (SEO) of Iran. Specific guidelines must address the contractual form of the SPAC, investor protection mechanisms, the scope of wakālah, and the permissible investment of idle funds in Shariah-compliant instruments. From a jurisprudential perspective, the SPAC model exemplifies the dynamic capacity of Islamic law to accommodate contemporary financial innovation through contextual ijtihad (legal reasoning). The alignment of SPAC structures with maqasid al-shariah—particularly the preservation of wealth (hifz al-mal) and facilitation of lawful trade (taysir al-tijarah al-halal)—demonstrates that Islamic finance can evolve alongside global capital markets while maintaining doctrinal integrity. In conclusion, the research confirms that SPACs can operate as legitimate, efficient, and Shariah-compliant vehicles for public fundraising and corporate acquisition in Iran’s capital market. With proper regulatory oversight and scholarly supervision, they can bridge the gap between jurisprudential authenticity and financial innovation, contributing significantly to the modernization and ethical robustness of Islamic financial systems.https://ifr.isu.ac.ir/article_77831_ae8af112a6d194771b9c85de634e1537.pdfImam Sadiq University"Islamic Finance Research" (IFR)2251-829014420251005Feasibility Study of Managing Default Risk Caused by Adverse Selection in Participatory Contracts Using Web 3 TechnologyFeasibility Study of Managing Default Risk Caused by Adverse Selection in Participatory Contracts Using Web 3 Technology7958307788410.30497/ifr.2025.248765.1984FAMohammadAndalibPhD Student in Islamic Economics, Faculty of Islamic Studies and Economics, Imam Sadiq University, Tehran, Iran0009-0007-5997-5362AhmadShabaniAssociate Professor, Department of Financial Economics, Faculty of Islamic Studies and Economics, Imam Sadiq University, Tehran, Iran0009-0007-5997-5362Journal Article202508241. Introduction and ObjectiveInformation asymmetry has long been recognized as a critical challenge within financial markets, where unequal access to information between contracting parties can lead to inefficient outcomes. In the context of Islamic finance, this issue manifests most prominently through adverse selection and moral hazard, both of which are substantially intensified in profit-and-loss sharing arrangements. Participatory contracts such as Mushārakah and Muḍārabah rely on mutual trust, transparency, and aligned incentives. However, empirical evidence from Islamic banking practice—particularly in Iran—shows that actual utilization of these contracts remains limited. Banks frequently avoid participatory financing and shift toward fixed-return modes (such as Murābaḥah), mainly due to the heightened risk of borrower default arising from information asymmetry, insufficient visibility into business operations, and difficulties in monitoring managerial behavior. Within this environment, adverse selection emerges before contract formation when the bank cannot accurately distinguish between high-quality and low-quality project proposals or entrepreneurs. This may result in the unintended approval of risky proposals, thereby elevating the likelihood of non-performing financing. The problem is further accentuated by limitations in credit assessment processes, inadequate transparency in project data, and disparity in profit expectations and execution approaches between banks and entrepreneurs. Recent advances in decentralized technologies—particularly Web3 architectures incorporating blockchain, decentralized identity frameworks, distributed ledgers, and programmable smart contracts—provide new opportunities to address these long-standing informational and contractual challenges. Web3 offers a structural shift from centralized information control to transparent and verifiable records shared within a network of stakeholders. Such transparency can diminish information asymmetry, reduce opportunities for misrepresentation, automate contract enforcement, and improve the reliability of credit histories. The primary objective of this research is to assess the feasibility of reducing default risk caused by adverse selection in Islamic participatory contracts through the application of Web3 technology. The study aims to: (1) Identify the core factors that generate adverse selection in participatory financing, (2) Evaluate the strength and direction of their influence on default risk, and (3) Analyze how Web3 mechanisms can mitigate these factors and enhance the practical viability of participatory contracts in Islamic banking systems.2. Methods and MaterialsThis research adopts a mixed-methods exploratory–confirmatory design. Owing to the complexity and conceptual novelty of integrating Web3 systems with Islamic financial contracts, the study began with a qualitative phase followed by quantitative model testing. Qualitative Phase: Delphi MethodThe qualitative stage employed a three-round Delphi process to identify and validate the principal determinants of adverse selection in participatory financing. The expert panel comprised university scholars in Islamic economics, senior managers of credit and risk departments in Iranian banks, and professional consultants in Islamic financial technology. The first round used open-ended questionnaires to collect diverse expert insights, resulting in an initial list of thirteen candidate factors. In the second round, a structured Likert-scale survey assessed the significance of the proposed factors. Consensus criteria were set at mean ≥ 3.5 and standard deviation ≤ 1, consistent with established Delphi methodology. In the final round, experts confirmed the final factor set, which consolidated into three primary constructs: (1) Lack of transparency in customer information, (2) Insufficient evaluation of the entrepreneur’s technical competence, and (3) Misalignment of objectives between financing partners. These validated constructs provided the basis for the structural model.Quantitative Phase: PLS-SEM AnalysisIn the second phase, a structured questionnaire was administered to 289 participants representing the same expert categories. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) via SmartPLS software. PLS-SEM was chosen due to:- The predictive and exploratory nature of the research,- The inclusion of higher-order and formative construct, and- Potential non-normality in expert response distributions. Model evaluation followed established metrics, including reliability (Cronbach’s alpha and composite reliability), convergent validity (AVE), discriminant validity, and structural path significance (t-statistics and p-values). Multi-collinearity was assessed using VIF values, all of which were below the acceptable threshold. Confidence levels were set at 95% with corresponding significance thresholds of p < 0.05.3. Research FindingsThe results of the structural model confirm that adverse selection exerts a direct and significant positive effect on default risk in participatory contracts (β = 0.299, p < 0.01). The components of adverse selection are strongly driven by:- Lack of transparency in customer information (β = 0.932, p < 0.001),- Misalignment of objectives between partners (β = 0.887, p < 0.001), and- Insufficient assessment of entrepreneurial competence (β = 0.885, p < 0.001). This highlights that default risk in participatory financing is not merely a result of financial capacity constraints, but is deeply rooted in information imbalances and strategic behavior at the contract initiation stage. The model further demonstrates that Web3 technologies have a significant mitigating influence. The path coefficient for Web3’s direct effect on reducing default risk is negative and statistically meaningful (β = −0.214, p < 0.01). Additionally, Web3 reduces the negative effects of adverse selection and information asymmetry, as shown by reversed and weakened path effects in the Web3-enhanced environment. Key Web3 mechanisms enabling this outcome include:- Real-time transparency and immutable information records,- Smart contracts that automate profit-sharing and enforce commitments,- Decentralized digital identity (DID) systems that support reliable, tamper-proof credit histories,- Tokenization of collateral and tangible/ intangible assets, enabling verifiable and liquid security guarantees,- Reduced monitoring and enforcement costs due to auditability of on-chain transactions. 4. Discussion and ConclusionThe findings of this research indicate that the primary barrier to effective participatory financing in Islamic banking is not merely structural or regulatory, but fundamentally informational. Adverse selection emerges where transparency, competence assessment, and goal alignment are weak. Conventional mechanisms—such as collateralization and post-contract supervisory audits—provide only partial and reactive mitigation. In contrast, Web3 offers a proactive and systemic solution by embedding transparency, verifiability, and automated compliance directly into the contract infrastructure. By shifting the reliance from personal trust to systemic trust, Web3 supports the original normative philosophy of Islamic finance: equitable profit-and-loss sharing, partnership-based financing, and ethical allocation of capital. From a policy perspective, adopting Web3 frameworks may substantially increase the feasibility and attractiveness of participatory financing modes for Islamic banks that currently avoid them due to high default exposure. This study contributes to the academic discourse on risk management in Islamic finance by demonstrating a structural linkage between information theory, contract design, and emerging decentralized technological capabilities. Practically, the research proposes a hybrid risk-management strategy, integrating traditional credit evaluation frameworks with Web3-based transparency, identity assurance, and automated enforcement. Future work should examine regulatory, Shariah governance, cybersecurity considerations, and interoperability standards needed to implement Web3-based participatory financing systems at scale. Nonetheless, the present results indicate that intelligent and compliant adoption of Web3 can significantly reduce default risk and enable the revival of participatory financing models in Islamic banking.1. Introduction and ObjectiveInformation asymmetry has long been recognized as a critical challenge within financial markets, where unequal access to information between contracting parties can lead to inefficient outcomes. In the context of Islamic finance, this issue manifests most prominently through adverse selection and moral hazard, both of which are substantially intensified in profit-and-loss sharing arrangements. Participatory contracts such as Mushārakah and Muḍārabah rely on mutual trust, transparency, and aligned incentives. However, empirical evidence from Islamic banking practice—particularly in Iran—shows that actual utilization of these contracts remains limited. Banks frequently avoid participatory financing and shift toward fixed-return modes (such as Murābaḥah), mainly due to the heightened risk of borrower default arising from information asymmetry, insufficient visibility into business operations, and difficulties in monitoring managerial behavior. Within this environment, adverse selection emerges before contract formation when the bank cannot accurately distinguish between high-quality and low-quality project proposals or entrepreneurs. This may result in the unintended approval of risky proposals, thereby elevating the likelihood of non-performing financing. The problem is further accentuated by limitations in credit assessment processes, inadequate transparency in project data, and disparity in profit expectations and execution approaches between banks and entrepreneurs. Recent advances in decentralized technologies—particularly Web3 architectures incorporating blockchain, decentralized identity frameworks, distributed ledgers, and programmable smart contracts—provide new opportunities to address these long-standing informational and contractual challenges. Web3 offers a structural shift from centralized information control to transparent and verifiable records shared within a network of stakeholders. Such transparency can diminish information asymmetry, reduce opportunities for misrepresentation, automate contract enforcement, and improve the reliability of credit histories. The primary objective of this research is to assess the feasibility of reducing default risk caused by adverse selection in Islamic participatory contracts through the application of Web3 technology. The study aims to: (1) Identify the core factors that generate adverse selection in participatory financing, (2) Evaluate the strength and direction of their influence on default risk, and (3) Analyze how Web3 mechanisms can mitigate these factors and enhance the practical viability of participatory contracts in Islamic banking systems.2. Methods and MaterialsThis research adopts a mixed-methods exploratory–confirmatory design. Owing to the complexity and conceptual novelty of integrating Web3 systems with Islamic financial contracts, the study began with a qualitative phase followed by quantitative model testing. Qualitative Phase: Delphi MethodThe qualitative stage employed a three-round Delphi process to identify and validate the principal determinants of adverse selection in participatory financing. The expert panel comprised university scholars in Islamic economics, senior managers of credit and risk departments in Iranian banks, and professional consultants in Islamic financial technology. The first round used open-ended questionnaires to collect diverse expert insights, resulting in an initial list of thirteen candidate factors. In the second round, a structured Likert-scale survey assessed the significance of the proposed factors. Consensus criteria were set at mean ≥ 3.5 and standard deviation ≤ 1, consistent with established Delphi methodology. In the final round, experts confirmed the final factor set, which consolidated into three primary constructs: (1) Lack of transparency in customer information, (2) Insufficient evaluation of the entrepreneur’s technical competence, and (3) Misalignment of objectives between financing partners. These validated constructs provided the basis for the structural model.Quantitative Phase: PLS-SEM AnalysisIn the second phase, a structured questionnaire was administered to 289 participants representing the same expert categories. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) via SmartPLS software. PLS-SEM was chosen due to:- The predictive and exploratory nature of the research,- The inclusion of higher-order and formative construct, and- Potential non-normality in expert response distributions. Model evaluation followed established metrics, including reliability (Cronbach’s alpha and composite reliability), convergent validity (AVE), discriminant validity, and structural path significance (t-statistics and p-values). Multi-collinearity was assessed using VIF values, all of which were below the acceptable threshold. Confidence levels were set at 95% with corresponding significance thresholds of p < 0.05.3. Research FindingsThe results of the structural model confirm that adverse selection exerts a direct and significant positive effect on default risk in participatory contracts (β = 0.299, p < 0.01). The components of adverse selection are strongly driven by:- Lack of transparency in customer information (β = 0.932, p < 0.001),- Misalignment of objectives between partners (β = 0.887, p < 0.001), and- Insufficient assessment of entrepreneurial competence (β = 0.885, p < 0.001). This highlights that default risk in participatory financing is not merely a result of financial capacity constraints, but is deeply rooted in information imbalances and strategic behavior at the contract initiation stage. The model further demonstrates that Web3 technologies have a significant mitigating influence. The path coefficient for Web3’s direct effect on reducing default risk is negative and statistically meaningful (β = −0.214, p < 0.01). Additionally, Web3 reduces the negative effects of adverse selection and information asymmetry, as shown by reversed and weakened path effects in the Web3-enhanced environment. Key Web3 mechanisms enabling this outcome include:- Real-time transparency and immutable information records,- Smart contracts that automate profit-sharing and enforce commitments,- Decentralized digital identity (DID) systems that support reliable, tamper-proof credit histories,- Tokenization of collateral and tangible/ intangible assets, enabling verifiable and liquid security guarantees,- Reduced monitoring and enforcement costs due to auditability of on-chain transactions. 4. Discussion and ConclusionThe findings of this research indicate that the primary barrier to effective participatory financing in Islamic banking is not merely structural or regulatory, but fundamentally informational. Adverse selection emerges where transparency, competence assessment, and goal alignment are weak. Conventional mechanisms—such as collateralization and post-contract supervisory audits—provide only partial and reactive mitigation. In contrast, Web3 offers a proactive and systemic solution by embedding transparency, verifiability, and automated compliance directly into the contract infrastructure. By shifting the reliance from personal trust to systemic trust, Web3 supports the original normative philosophy of Islamic finance: equitable profit-and-loss sharing, partnership-based financing, and ethical allocation of capital. From a policy perspective, adopting Web3 frameworks may substantially increase the feasibility and attractiveness of participatory financing modes for Islamic banks that currently avoid them due to high default exposure. This study contributes to the academic discourse on risk management in Islamic finance by demonstrating a structural linkage between information theory, contract design, and emerging decentralized technological capabilities. Practically, the research proposes a hybrid risk-management strategy, integrating traditional credit evaluation frameworks with Web3-based transparency, identity assurance, and automated enforcement. Future work should examine regulatory, Shariah governance, cybersecurity considerations, and interoperability standards needed to implement Web3-based participatory financing systems at scale. Nonetheless, the present results indicate that intelligent and compliant adoption of Web3 can significantly reduce default risk and enable the revival of participatory financing models in Islamic banking.https://ifr.isu.ac.ir/article_77884_591fbdd94b5eeb49bc3e67e12dd06f6e.pdfImam Sadiq University"Islamic Finance Research" (IFR)2251-829014420250929Investigating the Relationship between the Efficiency of Development Banks and the Country's Financial and Real Markets within the Framework of a Resistance Economy (Case Study of the Export Development Bank)Investigating the Relationship between the Efficiency of Development Banks and the Country's Financial and Real Markets within the Framework of a Resistance Economy (Case Study of the Export Development Bank)8318747787310.30497/ifr.2025.10017.1297FAMohammad HosinGavamAssistant Professor, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran0000-0001-5556-7846MohammadZareiPhD Student in Finance, Financial Engineering major, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran0009-0003-9759-2494Journal Article201712021. Introduction and ObjectiveDevelopment banks play a pivotal role in financing productive sectors and promoting sustainable economic development, particularly in emerging economies where access to long-term financing is limited. Their unique position—operating between public policy objectives and financial market mechanisms—enables them to bridge the gap between the real and financial sectors. Within the framework of Resilient Economy (Economy of Resistance) policies in Iran, development banks are expected to contribute to national economic stability, reduce vulnerability to external shocks, and support the growth of the real economy by channeling financial resources into productive investments. Among these institutions, the Export Development Bank of Iran (EDBI) occupies a distinctive position. As the only Islamic development bank specialized in export financing, it has a dual mission: promoting non-oil exports and strengthening national economic resilience. The efficiency of this bank, both in financial operations and resource allocation, directly influences the stability of the country’s financial system and the performance of its real sectors. Enhancing the efficiency of EDBI therefore becomes a critical requirement for realizing the objectives stated in Clause 9 of the Resistance Economy Policies, which calls for the comprehensive reform and strengthening of the national financial system to meet domestic economic needs, establish macroeconomic stability, and lead the real sector toward sustainable growth. Accordingly, this research aims to analyze the relationship between the efficiency of development banks and the dynamics of Iran’s financial and real markets, using the Export Development Bank of Iran as a case study. By applying a quantitative econometric framework, the study evaluates how macroeconomic indicators—such as liquidity, interest rates, and stock market performance—affect the financial efficiency of EDBI. The ultimate objective is to identify how this relationship contributes to the broader agenda of resistance economics, emphasizing financial resilience and structural stability. 2. Methods and MaterialsThis study is applied in purpose and quantitative in nature, seeking to empirically test theoretical relationships within a real-world context. The dataset covers the period 1993 to 2014 (1372–1393 in the Iranian calendar), a timeframe characterized by significant fluctuations in Iran’s financial and real sectors due to domestic reforms and international sanctions. To assess the financial efficiency of the Export Development Bank of Iran, three performance indicators were selected based on international and national benchmarking criteria: (1) Return on Assets (ROA) – representing the bank’s overall operational profitability and efficiency in using its assets. (2) Return on Capital Employed (ROCE) – reflecting the efficiency of capital utilization and investment returns. (3) Total Revenue to Total Cost Ratio (TRTC) – indicating the relationship between the bank’s total income and its total operating expenses. These indicators serve as dependent variables in a simultaneous equation system (SEM), designed to capture the two-way interactions between the bank’s efficiency and macroeconomic variables. The model incorporates both endogenous and exogenous variables, acknowledging the reciprocal effects between the banking sector and the national economy. The endogenous variables include:- Gold coin price,- Consumer Price Index (CPI),- Interest rate on bank deposits,- Exchange rate,- Tehran Stock Exchange Price Index (TEPIX), and- Inflation rate. The exogenous variables comprise:- Liquidity (M2),- Gross Domestic Product (GDP), and- Balance of Payments (BOP). The study employs the Three-Stage Least Squares (3SLS) estimation method within the EViews 9 software environment, which is particularly suitable for dealing with endogeneity and interdependence among equations. This method allows for efficient and unbiased estimation of parameters within a multi-equation framework, improving upon traditional Ordinary Least Squares (OLS) estimations that fail to capture simultaneous causalities. Dummy variables were introduced to account for potential structural breaks during 2011–2012 (1390–1391), a period associated with sharp currency devaluation and liquidity shocks in the Iranian economy. These variables enhance model accuracy by controlling for external disturbances and ensuring robustness of the estimation results. 3. Research FindingsThe empirical findings reveal a nuanced relationship between the financial efficiency of EDBI and macroeconomic conditions. Among the three indicators analyzed, the Return on Assets (ROA) emerged as the most significant and reliable measure of the bank’s efficiency in reflecting interactions with both financial and real market variables.- The model’s coefficient of determination (R² = 0.55) for the ROA equation demonstrates an acceptable explanatory power, indicating that more than half of the variations in EDBI’s efficiency can be explained by changes in the selected macroeconomic variables.- In contrast, the ROCE indicator presented weaker explanatory power (R² ≈ 0.15), suggesting limited responsiveness to macroeconomic fluctuations.- The TRTC ratio showed moderate explanatory capacity, highlighting operational but less financial sensitivity to external variables. Liquidity displayed a statistically significant effect at the 1% confidence level, with a negative coefficient, suggesting that decreases in overall liquidity reduce commercial banks’ lending capacities more sharply than that of the EDBI. Consequently, during liquidity contractions, EDBI’s relative efficiency improves due to its development-oriented and government-supported nature. Conversely, increases in liquidity facilitate timely debt repayments by exporters and reduce non-performing loans, which in turn enhance ROA. The exchange rate variable also had a significant and positive effect (p < 0.01) on EDBI’s efficiency. The appreciation of foreign currency against the rial increases the bank’s asset value, as a substantial portion of its resources are denominated in foreign currencies. Therefore, exchange rate volatility directly influences the financial position and profitability of the bank. Additionally, the balance of payments (BOP) exhibited a positive and significant effect (p < 0.05) on bank performance, emphasizing the close linkage between the country’s trade balance and the operational outcomes of development banks engaged in export financing. Collectively, these findings confirm that macroeconomic variables—particularly liquidity and exchange rate movements—are critical determinants of development bank efficiency in Iran’s hybrid financial–real economy environment. The results also underline the importance of systemic resilience and policy coordination between the central bank, the capital market, and specialized development institutions. 4. Discussion and ConclusionThe results of this research underscore the essential role of development banks as strategic instruments for implementing the Resistance Economy policies in Iran. The evidence suggests that EDBI’s financial efficiency is not only a function of internal managerial practices but also of its capacity to adapt to macroeconomic fluctuations. By strengthening its internal structure, improving capital allocation, and enhancing targeted credit mechanisms, EDBI can increase its contribution to macroeconomic stability and the growth of the real sector. In the context of Clause 9 of the Resistance Economy Policies, improving the efficiency and resilience of financial institutions, particularly development banks, is vital for ensuring a stable and self-reliant economy. The two-way relationship identified in this study between financial markets and bank efficiency implies that macroeconomic stability can be reinforced through the sound performance of specialized financial intermediaries. Policy Implications:1. Strengthening specialized banking within the Islamic financial system to enhance the resilience of the monetary market.2. Restricting commercial banks’ entry into foreign exchange markets during currency crises to protect the profitability of development-oriented institutions such as EDBI.3. Designing rapid-response policies to prevent financial crises that could spill over into the development banking sector and, consequently, the real economy. Research Recommendations:Future research should explore (a) the differential impact of macroeconomic variables on various types of development banks; (b) cross-country comparisons among successful development banking models; and (c) feasibility studies for establishing provincial or infrastructure development banks to promote balanced regional growth. In conclusion, the study contributes to both theory and practice by empirically validating the interdependence between development bank efficiency and macroeconomic performance under the framework of Islamic and resilient economic principles. Strengthening the operational and structural efficiency of EDBI—and, by extension, other development banks—can significantly bolster Iran’s capacity to withstand external economic shocks, support export diversification, and advance sustainable national growth.1. Introduction and ObjectiveDevelopment banks play a pivotal role in financing productive sectors and promoting sustainable economic development, particularly in emerging economies where access to long-term financing is limited. Their unique position—operating between public policy objectives and financial market mechanisms—enables them to bridge the gap between the real and financial sectors. Within the framework of Resilient Economy (Economy of Resistance) policies in Iran, development banks are expected to contribute to national economic stability, reduce vulnerability to external shocks, and support the growth of the real economy by channeling financial resources into productive investments. Among these institutions, the Export Development Bank of Iran (EDBI) occupies a distinctive position. As the only Islamic development bank specialized in export financing, it has a dual mission: promoting non-oil exports and strengthening national economic resilience. The efficiency of this bank, both in financial operations and resource allocation, directly influences the stability of the country’s financial system and the performance of its real sectors. Enhancing the efficiency of EDBI therefore becomes a critical requirement for realizing the objectives stated in Clause 9 of the Resistance Economy Policies, which calls for the comprehensive reform and strengthening of the national financial system to meet domestic economic needs, establish macroeconomic stability, and lead the real sector toward sustainable growth. Accordingly, this research aims to analyze the relationship between the efficiency of development banks and the dynamics of Iran’s financial and real markets, using the Export Development Bank of Iran as a case study. By applying a quantitative econometric framework, the study evaluates how macroeconomic indicators—such as liquidity, interest rates, and stock market performance—affect the financial efficiency of EDBI. The ultimate objective is to identify how this relationship contributes to the broader agenda of resistance economics, emphasizing financial resilience and structural stability. 2. Methods and MaterialsThis study is applied in purpose and quantitative in nature, seeking to empirically test theoretical relationships within a real-world context. The dataset covers the period 1993 to 2014 (1372–1393 in the Iranian calendar), a timeframe characterized by significant fluctuations in Iran’s financial and real sectors due to domestic reforms and international sanctions. To assess the financial efficiency of the Export Development Bank of Iran, three performance indicators were selected based on international and national benchmarking criteria: (1) Return on Assets (ROA) – representing the bank’s overall operational profitability and efficiency in using its assets. (2) Return on Capital Employed (ROCE) – reflecting the efficiency of capital utilization and investment returns. (3) Total Revenue to Total Cost Ratio (TRTC) – indicating the relationship between the bank’s total income and its total operating expenses. These indicators serve as dependent variables in a simultaneous equation system (SEM), designed to capture the two-way interactions between the bank’s efficiency and macroeconomic variables. The model incorporates both endogenous and exogenous variables, acknowledging the reciprocal effects between the banking sector and the national economy. The endogenous variables include:- Gold coin price,- Consumer Price Index (CPI),- Interest rate on bank deposits,- Exchange rate,- Tehran Stock Exchange Price Index (TEPIX), and- Inflation rate. The exogenous variables comprise:- Liquidity (M2),- Gross Domestic Product (GDP), and- Balance of Payments (BOP). The study employs the Three-Stage Least Squares (3SLS) estimation method within the EViews 9 software environment, which is particularly suitable for dealing with endogeneity and interdependence among equations. This method allows for efficient and unbiased estimation of parameters within a multi-equation framework, improving upon traditional Ordinary Least Squares (OLS) estimations that fail to capture simultaneous causalities. Dummy variables were introduced to account for potential structural breaks during 2011–2012 (1390–1391), a period associated with sharp currency devaluation and liquidity shocks in the Iranian economy. These variables enhance model accuracy by controlling for external disturbances and ensuring robustness of the estimation results. 3. Research FindingsThe empirical findings reveal a nuanced relationship between the financial efficiency of EDBI and macroeconomic conditions. Among the three indicators analyzed, the Return on Assets (ROA) emerged as the most significant and reliable measure of the bank’s efficiency in reflecting interactions with both financial and real market variables.- The model’s coefficient of determination (R² = 0.55) for the ROA equation demonstrates an acceptable explanatory power, indicating that more than half of the variations in EDBI’s efficiency can be explained by changes in the selected macroeconomic variables.- In contrast, the ROCE indicator presented weaker explanatory power (R² ≈ 0.15), suggesting limited responsiveness to macroeconomic fluctuations.- The TRTC ratio showed moderate explanatory capacity, highlighting operational but less financial sensitivity to external variables. Liquidity displayed a statistically significant effect at the 1% confidence level, with a negative coefficient, suggesting that decreases in overall liquidity reduce commercial banks’ lending capacities more sharply than that of the EDBI. Consequently, during liquidity contractions, EDBI’s relative efficiency improves due to its development-oriented and government-supported nature. Conversely, increases in liquidity facilitate timely debt repayments by exporters and reduce non-performing loans, which in turn enhance ROA. The exchange rate variable also had a significant and positive effect (p < 0.01) on EDBI’s efficiency. The appreciation of foreign currency against the rial increases the bank’s asset value, as a substantial portion of its resources are denominated in foreign currencies. Therefore, exchange rate volatility directly influences the financial position and profitability of the bank. Additionally, the balance of payments (BOP) exhibited a positive and significant effect (p < 0.05) on bank performance, emphasizing the close linkage between the country’s trade balance and the operational outcomes of development banks engaged in export financing. Collectively, these findings confirm that macroeconomic variables—particularly liquidity and exchange rate movements—are critical determinants of development bank efficiency in Iran’s hybrid financial–real economy environment. The results also underline the importance of systemic resilience and policy coordination between the central bank, the capital market, and specialized development institutions. 4. Discussion and ConclusionThe results of this research underscore the essential role of development banks as strategic instruments for implementing the Resistance Economy policies in Iran. The evidence suggests that EDBI’s financial efficiency is not only a function of internal managerial practices but also of its capacity to adapt to macroeconomic fluctuations. By strengthening its internal structure, improving capital allocation, and enhancing targeted credit mechanisms, EDBI can increase its contribution to macroeconomic stability and the growth of the real sector. In the context of Clause 9 of the Resistance Economy Policies, improving the efficiency and resilience of financial institutions, particularly development banks, is vital for ensuring a stable and self-reliant economy. The two-way relationship identified in this study between financial markets and bank efficiency implies that macroeconomic stability can be reinforced through the sound performance of specialized financial intermediaries. Policy Implications:1. Strengthening specialized banking within the Islamic financial system to enhance the resilience of the monetary market.2. Restricting commercial banks’ entry into foreign exchange markets during currency crises to protect the profitability of development-oriented institutions such as EDBI.3. Designing rapid-response policies to prevent financial crises that could spill over into the development banking sector and, consequently, the real economy. Research Recommendations:Future research should explore (a) the differential impact of macroeconomic variables on various types of development banks; (b) cross-country comparisons among successful development banking models; and (c) feasibility studies for establishing provincial or infrastructure development banks to promote balanced regional growth. In conclusion, the study contributes to both theory and practice by empirically validating the interdependence between development bank efficiency and macroeconomic performance under the framework of Islamic and resilient economic principles. Strengthening the operational and structural efficiency of EDBI—and, by extension, other development banks—can significantly bolster Iran’s capacity to withstand external economic shocks, support export diversification, and advance sustainable national growth.https://ifr.isu.ac.ir/article_77873_5f2312f5ba2e9ed7447b4d0b3798f082.pdfImam Sadiq University"Islamic Finance Research" (IFR)2251-829014420250712A Systematic Review of Money Creation Theories in Conventional BankingA Systematic Review of Money Creation Theories in Conventional Banking8759087785110.30497/ifr.2025.246810.1924FAMohammadTalebiAssociate Professor, Department of Finance, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran.0009-0009-4780-6793HosinHasanzadeh SarvestaniAssistant Professor, Department of Finance, Maaf Islamic Faculty and Management, Imam Sadiq University, Tehran, Iran0000-0001-9018-2108MahdiNouriAssistant Professor, Faculty of Economics, University of Tehran, Tehran, Iran0009-0005-0699-7408AlirezaNavabpourPhD Student in Financial Engineering, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran0009-0003-5200-8311Journal Article202412291. Introduction and ObjectiveUnderstanding the mechanism of money creation within modern banking systems constitutes one of the most fundamental issues in both monetary economics and Islamic jurisprudence. The ability of banks to create money—whether as financial intermediaries, through fractional reserves, or via direct credit creation—shapes not only macroeconomic stability but also the moral and legal legitimacy of banking activities from an Islamic perspective. Misconceptions or incomplete interpretations of the money creation process can lead to flawed economic forecasts, ineffective financial regulations, and, in the Islamic context, inaccurate jurisprudential rulings (fatwas) on the permissibility of banking operations. Historically, conventional economic thought has been dominated by two principal theories of money creation: the Financial Intermediation Theory and the Fractional Reserve Theory. The former views banks merely as intermediaries that channel funds from savers to borrowers, while the latter explains money creation as a multiplier process based on fractional reserve lending. However, both have been increasingly criticized for failing to reflect the real-world mechanics of bank balance sheets and the endogenous nature of money. Following the 2008–2009 Global Financial Crisis, these theoretical frameworks faced renewed scrutiny. The crisis exposed fundamental weaknesses in conventional banking assumptions and reignited debates about how money is actually created and circulated within modern financial systems. In this context, the Credit Creation Theory, which posits that banks create money ex nihilo through lending, gained prominence as a more realistic representation of banking operations. Against this background, the present study seeks to systematically review and analyze the evolution of scholarly perspectives on money creation theories after the global financial crisis. Its central objective is to determine which theory—financial intermediation, fractional reserve, or credit creation—most accurately describes the actual processes of modern banking and to evaluate how academic and empirical research has shifted in this regard between 2009 and 2023. Furthermore, the study aims to provide an analytical foundation for jurisprudential and policy-oriented interpretations in Islamic finance, where the conceptual understanding of money creation plays a pivotal role in issuing lawful rulings and designing Sharia-compliant financial systems. 2. Methods and MaterialsThis study employs a Systematic Literature Review (SLR) approach, chosen for its methodological rigor, transparency, and replicability. The systematic review enables the integration of empirical evidence from multiple studies while minimizing bias in the selection and interpretation of data. The research process followed the PICOC framework—Population, Intervention, Comparison, Outcome, and Context—to formulate precise research questions and search strategies. The research question was defined as follows: “In modern banking practice, which theory of money creation is actually implemented, and do existing theoretical models adequately explain this reality?” Population: Commercial and central banks in modern banking systems. Intervention: Theories and mechanisms of money creation and credit issuance. Comparison: Financial Intermediation, Fractional Reserve, and Credit Creation theories. Outcome: Empirical alignment of theoretical models with actual banking operations. Context: Post-crisis global banking systems between 2009 and 2023. To address this question, comprehensive searches were conducted across eight major databases: JSTOR, EconLit, ScienceDirect, SpringerLink, SSRN, Web of Science, Scopus, and Google Scholar, supplemented by the Iranian database Noormags for Persian-language studies. Keywords were developed based on the PICOC model, combining terms such as money creation, credit creation, monetary policy, fractional reserve, banking theory, and financial intermediation. The time frame was deliberately restricted to 2009–2023, as the post-crisis period represents a paradigm shift in both theoretical debates and empirical validations of banking practices. Initially, 204 studies were retrieved. After removing duplicates and applying inclusion criteria—focusing on peer-reviewed journal articles addressing money creation mechanisms—178 papers were retained. Subsequently, two independent experts in monetary economics reviewed the articles for relevance and quality. Through iterative screening and consensus discussions, the final corpus was narrowed to 54 studies that explicitly discussed or empirically tested at least one of the three main theories of money creation. Data extraction was performed using a predesigned form and validated through double-coding to ensure reliability. Analytical synthesis emphasized both quantitative and qualitative aspects, identifying patterns of theoretical adoption and empirical confirmation.3. Research FindingsThe systematic review revealed a clear and consistent trend in the post-2009 literature: a decisive shift toward the Credit Creation Theory as the dominant explanatory model of money creation. Out of the 54 analyzed studies:- Only one paper explicitly adhered to the Financial Intermediation Theory,- One paper supported the Fractional Reserve Theory, and- Fifty-two papers (≈96%) either explicitly or implicitly endorsed the Credit Creation Theory. This overwhelming empirical and theoretical consensus demonstrates a near-complete rejection of the older models. Prior to 2009, the fractional reserve view—based on the deposit multiplier—dominated textbooks and policy discussions. However, empirical investigations of bank balance sheets, especially those conducted by Werner (2014, 2016) and subsequent studies, have shown that loans create deposits, not vice versa, thereby validating the credit creation mechanism. Moreover, comparative analyses across geographical and institutional contexts (including the U.S., U.K., and European banking systems) revealed that money creation is an endogenous process driven primarily by the demand for credit and banks’ willingness to lend, constrained by regulatory and capital adequacy requirements rather than reserve ratios. Several subtheories under the credit creation framework were also identified:- Structuralist perspectives, which emphasize partial central bank control via interest rates and reserve requirements;- Horizontalist views, which consider money supply fully demand-driven and reserves supplied endogenously;- Post-Keynesian credit money theory, which links money creation to profitability and borrower creditworthiness; and- Modern Monetary Theory (MMT), which highlights the fiscal dimension of money creation in fiat systems. The findings further indicate that the Islamic banking model, while distinct in its prohibition of interest (riba) and speculative uncertainty (gharar), inherently rejects both the fractional reserve and credit creation mechanisms in their conventional forms. Instead, it promotes asset-backed and profit-and-loss-sharing frameworks such as murabaha, mudaraba, and ijara. Nonetheless, the operational realities of Islamic banks suggest a partial functional resemblance to credit creation, highlighting the need for deeper jurisprudential analysis. 4. Discussion and ConclusionThe results of this systematic review provide compelling evidence that, since 2009, the Credit Creation Theory has become the prevailing paradigm for understanding the mechanics of money creation in modern banking. This theory accurately captures the endogenous and credit-driven nature of money, aligning closely with empirical data from banking operations.From a policy standpoint, this finding carries profound implications. If banks are indeed the primary creators of money through lending, monetary authorities must focus on regulating credit allocation, capital adequacy, and risk management rather than relying solely on reserve-based controls. Central banks, acting as lenders of last resort, can influence but not directly determine the money supply. This necessitates more sophisticated frameworks for macroprudential supervision, liquidity management, and crisis prevention. From a jurisprudential perspective, particularly within Islamic finance, these insights call for a re-examination of fiqh-based rulings concerning money, debt, and the legitimacy of bank-created credit. Understanding that modern money is essentially a form of socially accepted credit reshapes the conceptual foundations of halal financial intermediation. Jurists and policymakers must align Islamic legal reasoning with the actual mechanisms of money creation to avoid issuing rulings detached from economic reality. Furthermore, the dominance of credit creation theory suggests an urgent need for policy innovation. Regulators and central banks should design mechanisms that ensure responsible credit creation while minimizing systemic risk. Educational institutions and research centers are encouraged to incorporate these findings into economic and Sharia curricula to bridge the knowledge gap between theoretical economics and Islamic jurisprudence. In conclusion, this study confirms that the Credit Creation Theory offers the most empirically valid and conceptually coherent explanation of how money is generated within modern banking systems. It provides a robust foundation for advancing both monetary policy reform and Islamic financial jurisprudence. Future research should further explore: 1) The interaction between credit creation and financial stability, 2) The adaptation of Islamic financial contracts to align with endogenous money realities, and 3) The potential of emerging technologies such as blockchain and artificial intelligence in enhancing transparency and oversight of credit creation processes. By integrating empirical economics with jurisprudential inquiry, this research contributes to a more comprehensive understanding of money creation—bridging the gap between theory, policy, and ethics in the evolving architecture of global and Islamic banking.1. Introduction and ObjectiveUnderstanding the mechanism of money creation within modern banking systems constitutes one of the most fundamental issues in both monetary economics and Islamic jurisprudence. The ability of banks to create money—whether as financial intermediaries, through fractional reserves, or via direct credit creation—shapes not only macroeconomic stability but also the moral and legal legitimacy of banking activities from an Islamic perspective. Misconceptions or incomplete interpretations of the money creation process can lead to flawed economic forecasts, ineffective financial regulations, and, in the Islamic context, inaccurate jurisprudential rulings (fatwas) on the permissibility of banking operations. Historically, conventional economic thought has been dominated by two principal theories of money creation: the Financial Intermediation Theory and the Fractional Reserve Theory. The former views banks merely as intermediaries that channel funds from savers to borrowers, while the latter explains money creation as a multiplier process based on fractional reserve lending. However, both have been increasingly criticized for failing to reflect the real-world mechanics of bank balance sheets and the endogenous nature of money. Following the 2008–2009 Global Financial Crisis, these theoretical frameworks faced renewed scrutiny. The crisis exposed fundamental weaknesses in conventional banking assumptions and reignited debates about how money is actually created and circulated within modern financial systems. In this context, the Credit Creation Theory, which posits that banks create money ex nihilo through lending, gained prominence as a more realistic representation of banking operations. Against this background, the present study seeks to systematically review and analyze the evolution of scholarly perspectives on money creation theories after the global financial crisis. Its central objective is to determine which theory—financial intermediation, fractional reserve, or credit creation—most accurately describes the actual processes of modern banking and to evaluate how academic and empirical research has shifted in this regard between 2009 and 2023. Furthermore, the study aims to provide an analytical foundation for jurisprudential and policy-oriented interpretations in Islamic finance, where the conceptual understanding of money creation plays a pivotal role in issuing lawful rulings and designing Sharia-compliant financial systems. 2. Methods and MaterialsThis study employs a Systematic Literature Review (SLR) approach, chosen for its methodological rigor, transparency, and replicability. The systematic review enables the integration of empirical evidence from multiple studies while minimizing bias in the selection and interpretation of data. The research process followed the PICOC framework—Population, Intervention, Comparison, Outcome, and Context—to formulate precise research questions and search strategies. The research question was defined as follows: “In modern banking practice, which theory of money creation is actually implemented, and do existing theoretical models adequately explain this reality?” Population: Commercial and central banks in modern banking systems. Intervention: Theories and mechanisms of money creation and credit issuance. Comparison: Financial Intermediation, Fractional Reserve, and Credit Creation theories. Outcome: Empirical alignment of theoretical models with actual banking operations. Context: Post-crisis global banking systems between 2009 and 2023. To address this question, comprehensive searches were conducted across eight major databases: JSTOR, EconLit, ScienceDirect, SpringerLink, SSRN, Web of Science, Scopus, and Google Scholar, supplemented by the Iranian database Noormags for Persian-language studies. Keywords were developed based on the PICOC model, combining terms such as money creation, credit creation, monetary policy, fractional reserve, banking theory, and financial intermediation. The time frame was deliberately restricted to 2009–2023, as the post-crisis period represents a paradigm shift in both theoretical debates and empirical validations of banking practices. Initially, 204 studies were retrieved. After removing duplicates and applying inclusion criteria—focusing on peer-reviewed journal articles addressing money creation mechanisms—178 papers were retained. Subsequently, two independent experts in monetary economics reviewed the articles for relevance and quality. Through iterative screening and consensus discussions, the final corpus was narrowed to 54 studies that explicitly discussed or empirically tested at least one of the three main theories of money creation. Data extraction was performed using a predesigned form and validated through double-coding to ensure reliability. Analytical synthesis emphasized both quantitative and qualitative aspects, identifying patterns of theoretical adoption and empirical confirmation.3. Research FindingsThe systematic review revealed a clear and consistent trend in the post-2009 literature: a decisive shift toward the Credit Creation Theory as the dominant explanatory model of money creation. Out of the 54 analyzed studies:- Only one paper explicitly adhered to the Financial Intermediation Theory,- One paper supported the Fractional Reserve Theory, and- Fifty-two papers (≈96%) either explicitly or implicitly endorsed the Credit Creation Theory. This overwhelming empirical and theoretical consensus demonstrates a near-complete rejection of the older models. Prior to 2009, the fractional reserve view—based on the deposit multiplier—dominated textbooks and policy discussions. However, empirical investigations of bank balance sheets, especially those conducted by Werner (2014, 2016) and subsequent studies, have shown that loans create deposits, not vice versa, thereby validating the credit creation mechanism. Moreover, comparative analyses across geographical and institutional contexts (including the U.S., U.K., and European banking systems) revealed that money creation is an endogenous process driven primarily by the demand for credit and banks’ willingness to lend, constrained by regulatory and capital adequacy requirements rather than reserve ratios. Several subtheories under the credit creation framework were also identified:- Structuralist perspectives, which emphasize partial central bank control via interest rates and reserve requirements;- Horizontalist views, which consider money supply fully demand-driven and reserves supplied endogenously;- Post-Keynesian credit money theory, which links money creation to profitability and borrower creditworthiness; and- Modern Monetary Theory (MMT), which highlights the fiscal dimension of money creation in fiat systems. The findings further indicate that the Islamic banking model, while distinct in its prohibition of interest (riba) and speculative uncertainty (gharar), inherently rejects both the fractional reserve and credit creation mechanisms in their conventional forms. Instead, it promotes asset-backed and profit-and-loss-sharing frameworks such as murabaha, mudaraba, and ijara. Nonetheless, the operational realities of Islamic banks suggest a partial functional resemblance to credit creation, highlighting the need for deeper jurisprudential analysis. 4. Discussion and ConclusionThe results of this systematic review provide compelling evidence that, since 2009, the Credit Creation Theory has become the prevailing paradigm for understanding the mechanics of money creation in modern banking. This theory accurately captures the endogenous and credit-driven nature of money, aligning closely with empirical data from banking operations.From a policy standpoint, this finding carries profound implications. If banks are indeed the primary creators of money through lending, monetary authorities must focus on regulating credit allocation, capital adequacy, and risk management rather than relying solely on reserve-based controls. Central banks, acting as lenders of last resort, can influence but not directly determine the money supply. This necessitates more sophisticated frameworks for macroprudential supervision, liquidity management, and crisis prevention. From a jurisprudential perspective, particularly within Islamic finance, these insights call for a re-examination of fiqh-based rulings concerning money, debt, and the legitimacy of bank-created credit. Understanding that modern money is essentially a form of socially accepted credit reshapes the conceptual foundations of halal financial intermediation. Jurists and policymakers must align Islamic legal reasoning with the actual mechanisms of money creation to avoid issuing rulings detached from economic reality. Furthermore, the dominance of credit creation theory suggests an urgent need for policy innovation. Regulators and central banks should design mechanisms that ensure responsible credit creation while minimizing systemic risk. Educational institutions and research centers are encouraged to incorporate these findings into economic and Sharia curricula to bridge the knowledge gap between theoretical economics and Islamic jurisprudence. In conclusion, this study confirms that the Credit Creation Theory offers the most empirically valid and conceptually coherent explanation of how money is generated within modern banking systems. It provides a robust foundation for advancing both monetary policy reform and Islamic financial jurisprudence. Future research should further explore: 1) The interaction between credit creation and financial stability, 2) The adaptation of Islamic financial contracts to align with endogenous money realities, and 3) The potential of emerging technologies such as blockchain and artificial intelligence in enhancing transparency and oversight of credit creation processes. By integrating empirical economics with jurisprudential inquiry, this research contributes to a more comprehensive understanding of money creation—bridging the gap between theory, policy, and ethics in the evolving architecture of global and Islamic banking.https://ifr.isu.ac.ir/article_77851_8570cce54d7be9f79d0fd44339362a93.pdf