Time Value of Money and Discounting in Islamic Perspective

Contemporary research on investment behaviour in Islamic perspective, most of the time, finds it expedient to assume zero rate of time preference in an Islamic economy. The author argues that there is no justification for that. According to him, there is nothing against positive time preference or against realizing a time value of money in an Islamic framework, as long as time value of money is not claimed as a predetermined value. The paper also identifies possible discount rate to be used in evaluating projects, particularly in the public sector. The rates of return paid by Islamic banks on deposits of different maturities, have been suggested as close proxies for discount rates for the evaluation of projects of different maturities.