English
The word “Qard” is an Arabic rooted word, which is derived from ‘qirad’, and it means to cut.
It is called qard as it cuts certain portion of owner or lender property by giving loan to the borrower. Hasan is also an Arabic word which is originated from the word ihsan.
It means to do kindness with someone. So hasan is an act which benefits the person other than those from whom the act is proceeds without any obligation.
By combining both words qard and hasan, the term qard al hasan means beneficial loan, benevolent loan, beautiful loan, interest-free loan and gratuitous loan.
According to the M.Umar chapra, qard al hasan is defined as, ‘it is a loan which is returned at the end of pre-agreed period without any interest or share in the profit and loss of the business.
Therefore, the qard al hasan is gratuitous loan given to the needy people without the payment of the interest and the borrower or the receiver is only required to repay only the principal amount without any interest at the due date of the loan.
Read more about: Islamic View of Debt, Lending & Borrowing
Al Qard al-Hasan is granted purely out of kindness and with the intention of helping those in need for the sake of Allah.
In Qard al-Hasan, only the principal amount is repaid to the lender without any interest or profit-sharing.
On the other hand, a conventional loan is entirely based on interest, requiring the borrower to repay the principal amount along with interest, while the lender receives both the principal and the interest as profit.
From a Shariah perspective, conventional loans are strictly prohibited as they fall under the category of Riba al-Nasiah, which is explicitly forbidden in Islam.
According to the definition and characteristics of Qard al-Hasan, it is not a donation but a loan, where the borrower is required to repay the principal amount on the due date.
In contrast, a donation is a voluntary contribution where the beneficiary or deserving individual receives the amount without any obligation to repay it.
The donor provides assistance purely with the intention of seeking reward in the Hereafter.
There is a fiqhi principle, "القروض تُقضى بأمثالها," which means "Loans should be repaid with their equivalents."
This principle states that a loan must be repaid with its equivalent value, without any increase over the principal amount.
Based on this principle, it is understood that imposing a late payment fee is impermissible from a Shariah perspective.
Yes, Islamic banks offer Qard al-Hasan or benevolent loans, but on a very limited scale.
Since only the principal amount is repaid by the borrower, Islamic banks provide it as part of their corporate social responsibility rather than as a core banking activity. For more detail, refer to the AAOIFI governance standard
Read more about: Is Islamic Banking Truly Halal?
Yes, it is permissible for the lender to stipulate collateral or guarantees in a Qard al-Hasan contract to secure the principal amount.
If the borrower delays repayment or defaults on the loan, the lender has the right to sell the collateral or enforce the guarantee to recover the loaned amount. For more detail, please refer to the AAOIFI Shariah Standard number 5
Read more about: Collateral Assessment: How Lender Evaluate Eligibility For Borrowers?
Murabaha and Mudarabah are sale and trade contracts in which profit and loss are shared between two or more parties according to agreed terms.
In contrast, Qard al-Hasan is an interest-free loan where only the principal amount is repaid to the lender, with no involvement of profit or loss between the borrower and lender.
Read more about: Your Basic Guide to Mudaraba
According to the AAOIFI statement on administrative fees for lending institutions, it is permissible for the lending institution to charge service fees only for the actual amount spent on providing those services.
However, charging any excess amount beyond the actual service cost is not allowed. All charges exceeding the actual expenses are strictly prohibited.
It is essential to ensure accuracy in determining these charges to prevent any excess amount that could be considered a financial benefit.
Additionally, the determination of service charges must be overseen and approved by the institution’s Shariah Supervisory Board. For more detail please refer to the AAOIFI Shariah standard number: 19
If the borrower unable to repay the loan, the lender cannot impose any penalties or extra charges, he may:
i- Grand the extension, to extent the due time.
ii- Utilize the collateral, in case if the borrower kept a collateral.
iii- Waive the loan. It will be a kindness and ihsan from a lender side on borrower.
Read more about: Is Buy Now, Pay Later Halal & Shariah Compliant?
References:
https://aaoifi.com/ss-5-guarantees/?lang=en
https://aaoifi.com/ss-19-loan-qard/?lang=en
Hossain, M. D. (2002). Al-qard al-hasan: A practical approach. Retrieved from www. witness-pioneer. Org.
https://aaoifi.com/themencode-pdf-viewer-sc/?
Disclamer:
This post is for educational purposes only, and the Firm does not directly or indirectly provide these services.
