The discussion of Iran’s economy includes a reviewof the nation’s banking system, which is partly based on the mudarabahconcept from Islamic economics. As the authorsnote, banks operating under this system act more likebusiness partners than lenders to their business customers. The banksearn a share of the profits from the borrower rather than collectinginterest payments. Versions of this partnership approach can also befound in other economic systems. For example, some European banks andtheir borrowers invest in each other as a way to form closer businessrelationships.

Consumer loans can be arranged in a similar fashion if the lendercollects a share of future income instead of interest payments. Forexample, some people are eligible to arrange for income-based repaymentof federal student loans. If the borrower has relatively low incomeafter they graduate, their initial loan payments are reduced, and theirmonthly payments increase over time as their income grows. Therepayment term may extend longer than the usual 10 years under thissystem, but some of the debt may be forgiven if the borrower’s incomeremains relatively low over time.

Suppose banks extend this approach to other forms of consumercredit like auto loans. Would this be a reasonable way to helpborrowers handle income disruptions like lay-offs or temporaryreductions in their normal hours? Would there be any problems with theincome-based repayment scheme when applied to consumer credit? Wouldyou prefer this system?