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

Document Type : Original Article

Authors

1 Department of Economic Sciences, Firooz Kooh Branch, Islamic Azad University, Firooz Kooh, Iran

2 Department of Accounting, Ghaemshahr Branch, Islamic Azad University, Ghaemshahr, Iran

Abstract

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

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