Allocation of capital resources,efficiency and growth in an Islamic interest-free economy

This paper examines briefly some basic issues in capital allocation and efficiency in the context of an interestfree islamic economy. it scrutinizes the common apprehension that eliminating interest on loans deprives the economy of a major market signal necessary for efficient allocation of investment. it addresses the allocation of investable funds and real investments,and the possible impact on growth,in an economy where the charging of interest on loans and debts is prohibited. the overall conclusion is that disallowing the charging of interest on loans and debts,as an integral part of an islamic market economy,is not a romantic idea but a feasible system that permits efficient market allocation of financial and real investable resources.