the role of interest in the islamic countries

Metwally (1993) examined the role of the rate of interest in contemporary Islamic society. The aim of his research is to assess the role played by the interest in both demand of and the demand of investment. He compare between Islamic countries and non-islamic countries. Countries that made the object of research are 12 islamic country and 12 non-islamic country from 1970-1989. Interestingly the regression result in Islamic, suggest that the demand for narrow as well as broad money in the contemporary Islamic countries is not determined by the rate of interest. The coefficient of the variable r_t were not statistically significant in any demand equation of any muslim country covered by this study; not even at the 10% level of significant. On the other hand, the rate of interest is important determinat of the demand for money in non-islamic countries. Thus the estimated “t” values of the variables were significant at least 5% level of significant. According to him also, many previous studies reached the conclusion that the rate of interest is an important factor in determining the demand for cash in developing and developed non-islamic economies.