The impact of debts resulting from the application of Law No. 1 of 2013 regarding the prohibition of dealing with usurious interest on the performance of Libyan banks: an analytical study

Abstract

The application of Law No. 1 of 2013 on the suspension of usurious transactions in the Libyan banking system and working in accordance with the provisions of Islamic Sharia resulted in debts on banks for the period prior to the issuance of the law, which requires legal and economic treatments, on the legal side, how do Sharia provisions regulate the effects of the application of this law, while on the economic side, how do debts resulting from stopping usurious transactions affect the financial performance of the Libyan banking sector. This study aims to identify and discuss illegitimate debts that It resulted from the application of Law No. 1 of 2013 on stopping usurious transactions and switching towards Islamic banking and measuring the extent of its impact on the financial performance of Libyan banks, and how to address them legally. The study found that although many of the Sharia treatments that were developed to address debts before switching to the Islamic banking system, on the economic side, Libyan banks lack financial and accounting mechanisms to translate Sharia treatments into practical solutions that comply with the controls of Islamic Sharia, and the study also found that illegal debts resulting from the law of stopping usurious transactions significantly affect the financial performance of Libyan banks, as the rate of profitability of banks in Libya decreased as a result of the application of the law. Debts owed to the bank have a greater impact on financial performance than debts owed by the bank.