Answer to Question #282048 in Macroeconomics for Bilal

Question

Impact of Traditional economics on banking sector. (Objectives, functions, outcomes, Rules against Islam) ?

Answer 1

Traditional economics is a system where the production and distribution of goods and services, are determined by tradition and societal needs rather than by their potential for monetary profit. People typically trade or barter instead of using money, and they depend on agriculture, hunting, fishing, or a combination of the three for their livelihoods.

Objectives

The main objectives include; economic freedom, economic growth, efficiency, and full employment, security, and stability, and the most important being economic goal is economic stability. This is because economic stability enables other macroeconomic objectives to be achieved.

Functions

There are two major functions of banks are;

·        Accepting deposits from the customers after sales of their products like fish and farm produce.

·        Granting loans to the customers so that they can do investment in their traditional businesses.

Outcomes

Banks are the foundation of a strong economy indicating an extensive system of finance in the country. Banks aid in financial activities of the government bodies and boost investment across sectors including fishing and farming and their growth has brought increased economic growth of the economy.

Rules against Islam

Islam prohibits interest, so the Islamic banking system involves products that do not include interest what is normally referred to as riba which are according to Shari’ah principles, therefore it is also called interest-free banking. The system is developing with the passage of time as the demand for interest-free products is also increasing. More and more customers are keen to bank in the Islamic way and many commercial banks are also introducing Islamic banking products separate from the conventional ones. Many non-Muslims also are customers of Islamic banks. Islamic banking is also very popular in some non-Muslim countries.