Since the birth of Banking system and interest based economies, islamic economic system which was interest free has vanished and due to globalization economies are now integrated with each other. So in this globalized world how it is possible to develop an interest free economic system????

First define"Interest". I for one don't think that the concept of interest as used in modern economies is the same as the concept of interest prohibited in Islam.

2nd why do you want to develop a interest-free economy? If you want to introduce an entirely new economic model, you must back it up with arguments. Do you have conclusive proof that an interest-free economy is better than our current system?

"Interest is a loan with the condition that the borrower will return to the lender more than the quantity borrowed."
Take a look at these facts:

receiving interest means you get money for literally doing nothing and risking nothing
paying interest means you need to come up with money regardless of whether your business is even making money
interest accumulates over time and often surpasses the original sum you lent
for example: at a rate of 8% over 10 years the interest sums up to 115% of the original credit sum
banks often charge 12-30 % interest when they lend you money
when someone owing the bank money already paid back the original sum he is still a "slave" of the bank until the interest is paid... and: the longer he need to pay back the bigger the sum he must pay gets which in some cases leads to growing old and die with debt.


due to all these reasons rich are becoming richer and poor, poorer.
so an interest free economic model is the answer to avoid this problem. but how an interest free economic model can be developed i don't have any answer for that and that is the reason i started this thread to know the views of others.

Seriously, you think that the modern economies have a different notion of 'interest' in comparison to the one identified by Islam? Everywhere in the world, the term 'interest' refers to the payments made in addition to principle amount of the debt/borrowing. In Quran, it is referred as 'Riba' and it is defined in the exact same notion. All banking systems and institutions rely on the 'interest income' to generate revenues. All countries/nations borrow and lend money by charging interests depending on the sovereign risks etc. Take the example of the transactions between IMF and Pakistan. Moreover, all companies (Either private or public) include 'interest charged debt' in their capital structure and the term leverage is also related to represent the level of borrowings. Take any company from KSE 100, NYSE 100 and FTSE 100 list and you will find intensive debt borrowings. There is no doubt in the validity of the statement that this 'interest' is exactly the same 'riba' discussed in Quran. If you want to explore the concept of Riba in Islam, read versus of Surah Bakara (following verse 275).

If you differ in stance, please explain, in your opinion how modern economies constitute 'interest' other than the core concept discussed above.

As far as the arguments against interest based economy are concerned, an Islamic state should follow the ruling of Quran and sunnah. Hence, regardless of the 'outcome', the observance of the general sharia principles is must for all Islamic economies. Therefore, the economy should ideally be free of interest regardless of the feasibility of the system.

Let's ignore the concept of Islam and tackle the question from a pure economic perspective. How can economies bridge the gap between the rich and the poor? By allowing the large corporations to use the money of the common people (in the form of debt from bank), generate enormous gains and transfer it's small portion to the banks who subsequently pay less than half of it to the depositors? This is the current scenario and as per theory and the real outcome, this system accumulates wealth in the pockets of a handful of individuals/parties. Islam proposes that the money given as 'ammnah' to the banks should be returned with its full rewards (percentage of the profits from the investment). If the interest based system is superseded by the Islamic based economic model, surely the gap between the rich and the poor is destined to abridge.

Additionally, Islam also proposes that no asset should be traded until and unless it is 'capable of delivery', 'capable of ownership' or is backed by some real tangible asset. The financial crises of 2007-2008 is the outcome of the absence of these factors. This is the prime reason why the not-so-Islamic 'Islamic banking' has attained record growth figures in the recent years. If you really want to learn the arguments against the interest based economy, please refer to the literature of Maulana Justice Taqi Usmani in relation to 'the Historic Judgment on Interest Given by the Supreme Court of Pakistan'. You will also note that how lawyers, bankers and multinational corporations twisted the basic arguments to win the ruling in favour of the interest based economic system. Google it and you will find the text+judgement.

Well the aspect of incorporating the entire economic system of Islam in the Muslim countries is a far cry. You cannot do that unless all other aspects of legal and social justice are coherently present with the economic model. Moreover, all islamic countries, ever since their inception, had adopted interest based banking systems. So a sudden change will cause an enormous loss to the people in genral, and economy as a whole. This was the same logic put forward by the banks during the 1991 Supreme Court decision. And it was owing to the feasibility of the current economic system, that supreme court ruled in favour of interest based system. If any Islamic country decides that Interest is prohibited from today, investors, depositors and companies will lose a major chunk of money, stock markets will crash and economy will consequently suffer a huge setback.

One feasible option is to alter or change the mode of banking in steps. However, it will require a substantial time period. In the current scenario, no country can survive if it adopts an interest free economy model. Hence, the transition should take more than a decade. Firstly, the banks would be regulated to provide the share of profits to the depositors. Moreover, the balance sheets of the companies will consequently constitute an 'all equity' capital structure. The entire system will be fall apart. You should go through the 'supreme court decision' in order to spot the arguments for the existence of interest free economy. Essentially speaking, you can theoretically spot a lot of arguments for the interest free system but you will not find the practical steps to implement one.
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The one who is most deserving of thanks and praise from people is Allah

To build an interest free economic system, we should have to follow the Saudi Arabia and all other Islamic countries, in which there is no any interest system. Their economies depends only on Zakat system

for a moment we accept your arguments i favor of interest system. than why do the economists and bankers struggle to minimize the interest rate? some stable economies even kept it below 1%. this means that stability and IR has some relationship.

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"It is better to lose on truth than to win on lies"

The existence and minimization of interest rates are two different aspects. By pointing out that economies keep interest rates low, you cannot justify that their removal will be beneficial or that their absence is preferred (it is not a logical argument).

What do you mean by ‘stable’? And btw, it is the interest rate and inflation that determines the stability (defined as less fluctuations in the core macroeconomic variables) and not the other way round.

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The one who is most deserving of thanks and praise from people is Allah

Well the 'Islamic economic model' if there is any would perhaps rely extensively on trust, faith and good will which are largely absent from people's behavior these days . Therefore the alternate to interest based capitalist economy is socialist counterpart which has problems of its own as it slows down growth etc. And also socialist economy would practically put too much authority in the government, something that must be avoided in case of Pakistan as we don't seem to have a sincere government. So let's live with interest and pray to God haha .

BTW I don't see any permanently designed economic model in Shariah which could be considered religious. There are guidelines which might help shape socio economic behavior and help shape the economy on Islamic principles but apart from that I think it's worthless digging religion for a divine economic model . If we are true God fearing Muslims who are mindful of proper reasoning then our economic model is Islamic, else let's face this interest as a punishment haha. At the time of development of Islam the predominant mean of production was agriculture, it was neolithic age, today it's not.

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The precondition for existence of a higher humanity is not the state, but the nation possessing the necessary ability.

If the formal study of Economics as a science begins with Adam Smith then the formal study of Islamic Economics as a system begins with Muhammad Ali Jinnah! Surprised? Here is an excerpt from the Quaid's speech on his inaugration of the state bank on 1st July 1948:
"The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contended people. We must work our destiny in our own way and present to the world an economic system based on the true Islamic concept of equality of mankind and social justice. We will thereby be fulfilling our missin as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind."
getting it? The Quaid is saying that we should present an Economic System based on true Islamic principles to the world and not just to Muslims. It is one of the reasons that most of the literature on Islamic Economic system originates from Pakistan. Prof. Khurshid Ahmad ( yeah yeah the same one) has an honorary degree from UK for his work on Islamic economics. Islamic Banks have now opened up branches in Australia, Canada, France, Germany, Italy, Russia, Switzerland, South Africa, Britain, US, etc. and they have just begun to flourish so relax guys, Islamic Economic system will take care of itself now.
The State Bank of Pakistan in a bid to alleviate poverty planned to construct houses for the poor on the basis of Islamic Economics. They haven't been successful. Why? Because the government is creating hurdles for them. That problem I think should be solved in the next twenty to thirty years.

Secondly, why should the anti-interest people justify that interest banking is wrong? Why don't the pro-interest people justify the existence of interset for a change? Don't sweat yourself though as no Economist of repute, as yet, has been able to explain as to why interest is paid!

Thirdly, no political, social or economic system in the world can function smoothly without an active and honest participation of the people. So to target ISlamic Economic System for being "not automatic" is a bit unfair.
Justification for Terminology. An economic system is a system which is concerned with the consumption, production and distribution of wealth. let's take only consumption for instance. In western economies the consumption of alcohol is allowed. But in Islam it is not. Thus to distinguish a system in which Consumption as well as production of alcohol is banned we can give it a different name, no? But it isn't as simple (or ridiculous) as that. Western economics taxes income, sales, property etc. Zakat is a unique tax as it taxes savings. But Zakat is an Islamic concept, rest you are intelligent. Also the rate of Zakat is not fixed, It can be increased as well as decreased. Ushr is a tax on agricultural production.Kharaj is on land. Jizya is on non Muslims. Zakat is also applicable on commercial property and industrial produce. And there are other aspects of Islamic economics that are generally unknow. Like it prohibits feudalism. Like it prohibits the unutilization of land, i.e. If Land is unutilized for three years it should be given to a new owner. For details read:
Islamic Economics Theory and Practice by M.A. Mannan
Islamic Economics By Prof. Dar
Elimination of Riba from the economy, Institute of Policy Studies Islamabad
A Challege of Islamic Economics, Muhammad Akram
The Economic System of Islam by M. Umar
Implication of Islamic Landownership and Land Cultivation Ahmad Mustafa

Regardless of which age we live in there will be consumption, production and distribution of wealth. The world has changed in form but not in substance. Then the status symbols were horses, camels and elephants running on fresh plants and trees. Noe the status symbols are Mercedes, Honda and corolla running on dead plants and trees! Nothing has changed. Politics are still moulded by prejudices. Society is still run by the concept of "oonchi naak". Economics is still run by profit motive. So what has changed?

Thousands of years ago people lived in houses of bricks. Moenjodaro and harrapa are better planned than Lahore and pindi. Now people sleep on the streets and children reside in markets. The only change is a quicker pace of communication. The murders and atrocities hidden years ago are now visible through electronic media and suddenly everyone has lost their marbles. So please relax. The worst situation is that nothing will improve. So what the heck? All we can do is do the best that we can to improve things and that is the best we can do.
Please, don't be 'enchanted' by the illusion of change.

No system in the world can work by itself. Every system is run by and is as efficient as the human beings running it. To change the mindset of the people is the real task at hand. That needs to be worked upon. Else even religion is being used for vested interests.