The Examination of the Effect of "Gharz Al-Hasanah" loan on Income Distribution in Iran

The interest rate in the conventional banking system by limiting the return on investment creates a gap between investment and savings, reducing labor incentives, limiting employment levels, and increasing inequality of income. In the economic system of Islam, Gharz al-Hasanah has been considered as one of the effective ways and means to reduce the income distribution inequality; Thus, Gharz al-Hasanah can play an important role in stabilizing the income of the needy by transferring money from wealthy to low-income classes, creating the ground for changing the pattern of production, increasing employment and meeting the essential needs of the above mentioned classes. Accordingly, the purpose of this paper is to analyze the effects of Gharz al-Hasanah facilities on income distribution in Iran using impulse response functions IRF and variance decomposition analysis VD analysis techniques during the period (1984-2013). The results of the stimulatory response functions indicate that a positive shock in the logarithm of the Gharz al-Hasanah facilities of banks and non-bank credit institutes for a half-course of action it has increased inequality and then reduced inequality up to the tenth period. However, the decline in income inequality has been trifling. Also, the results of analysis of variance indicate that the logarithm contribution of banks' Gharz al-Hasanah facilities and non-bank credit institutions in explaining the Gini coefficient was 30.5%.