In case the cash invested results in wealth creation but by an amount less than the cash invested and the resources used, society is poorer to the extent of the loss, as the borrower must repay the debt by compensating for the loss out of existing wealth owned or acquired by him/her. The same applies to cases in which invested cash is totally lost, no wealth creation having taken place. In both cases a redistribution of wealth in favor of the creditors is involved" (Siddiqi, 2007).
This paper is an examination of actual investment has increased in the past few years that the tawarruq system is in place. Investment is one the path through which wealth creation can occur. We expect the tawarruq system to aid business process and investment so as to further improve the economy. Other variables that may be affected in the process are interest rates, exchange rates, consumption and bank's profitability. The three are macroeconomic variables while the last is a microeconomic variables. We particularly desire that people do not owe money for consumption purposes alone but for investment.
The research will commence with the review of related literature. ...
B. Research Questions
a. What is the tawarruq system's impact on Saudi Arabia's over-all level of investment
b. What is the tawarruq system's impact on Saudi Arabia's over-all level of consumption
c. What is the effect of the tawarruq system on Saudi Arabia's interest rates
d. What is the effect of the tawarruq system on Saudi Arabia's exchange rate
e. What is the impact of the tawarruq system on banks' profitability
C. Methods and Procedures
The research will commence with the review of related literature. This is where we identify the gaps in the study that need to be filled. The literature review will also provide us a knowledge of the depth of current and previous researches on the topic. The review will also include desk research of recent news about the conduct of the business and the related figures.
Data mining for the necessary figures will follow. We will particularly mine the data for the over-all tawarruq level of lending (the amount of lending per year) for the last 10 years, the figures for investment, consumption, interest rate and exchange rate for the last 10 years. To establish the relationship between these variables, we will use simple regression of the time series analysis. An econometric software, Eviews 4 will be particularly used to test the relationship. The possible outcomes are significant or not significant and whether the direction is positive or negative.
D. Goals and Objectives
This paper wishes to trace the practice of the tawarruq lending system in Saudi Arabia and its impact on wealth creation primarily the investment variable. Lending is a path to consumption or investment and it is said to create wealth if it goes to the latter. In this paper we particularly examine