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WHAT IS QARD AL-HASSAN?

Qard al-hassan, also known as qard al-hasan, is an Islamic finance term that essentially refers to a loan that is interest free. Typically in a transaction that includes qard al-hassan, the borrower will repay the amount owing under the principal amount without any other mark up or interest payment being charged. Qard al-hassan financial products are compliant with Sharia rules that dictate that interest (riba) payments are not permissible, whether the interest is being paid or being charged.

These types of loans offer financial solutions for Muslims looking to borrow funds that do not include any interest payments.

Qard al-hassan loans are loans that are provided to help others. The word hassan itself means acceptable or good (of good faith). Islamic banking services are now offering qard al-hassan loans for both Muslims and non-Muslims.

Qard Al-Hassan Loans

In Islam and Islamic banking, Qard al-hasan loans do not have an interest rate element, and this means that businesses and consumers are able to borrow money on a goodwill basis. Generally speaking, qard al-hasan loans tend to be used for welfare purposes. The Quran stipulates that Muslims should endeavour to provide these types of benevolent loans where possible and to those who need these kinds of services.

"Establish regular prayer and give regular charity and give Allah Qard Hassan" (Quran 73:20)

The principle of qard al-hassan in Islam enables Muslims to further the social justice ethos that underpins Islamic finance. Islamic finance facilitates loans from those with the funds to those who need financial assistance without breaching Sharia rules. Qard al-hassan can be viewed as a loan agreement that is akin to giving charity. The borrower and lender sign an agreement confirming the terms of the qard.

HOW DOES QARD AL-HASSAN WORK?
In Islam, qard al-hassan works in the following way. A lender will lend a business or service an amount of money that they need (usually for social justice purposes). The principal amount borrowed will be interest-free. The borrower will then repay the amount of money borrowed without any interest or surplus payments owing. Borrowers are permitted to pay an additional amount back to the lender as a gesture of goodwill, but this cannot be done based on any promise or commitment.

Qard al-hassan loans do not increase over time or accumulate any interest charges like traditional loans do. This means they offer problem solving solutions for Muslims.

The most important element of Islamic qard al-hasan loans is that they are untouched by any form of riba. There should not be any reference or link to the economic market conditions and fluctuations, and the lender cannot ask for the return of the loan before the contractual repayment period ends.

Qard Al-Hassan - The Redistribution Of Wealth

Islamic finance systems focus on socio-economic justice and the enhanced wellbeing of society, especially the alleviation of poverty. Alongside sadaqa and zakat, qard al-hassan is an essential Islamic finance instrument of redistribution of wealth.

Qard al-hassan minimises the cost of borrowing and remains compliant with Islamic Sharia law. It's one of several halal investing principles that guide how Muslims manage and grow wealth ethically.

Social Justice, Qard And The Islamic Finance Economic System

The Islamic finance economic system has always centred on principles of social justice (as mirrored throughout the practices and teachings of Islam). The focus of the finance system is to ensure and improve the overall wellbeing of society and using money to enhance social conditions.

Qard al-hassan is a key concept that acts as a crucial redistributive instrument. The distribution of funds from the rich to the poor aims to reinforce social unity and cooperation. As the global experience of, and appetite for, ethical finance options and factor analysis continues to grow, qard al-hassan is fast emerging as an important tool in the fight against poverty and the drive to ensure there is more financial freedom and equity for poorer communities.

As more and more Islamic finance companies and banks are offering innovative qard al-hassan products and financial services, project management for those customers and business operations working within the social justice sector will become easier and more accessible. Qard al-hassan services will start to become more readily available in banking and private sector financial industries.

The opinion of scholars is that qard al-hassan loans are problem solving as they facilitate the redistribution of funds that are compliant with ethical and Islamic finance principles. Islamic finance is facilitating financial freedom and investment options for those who have historically been excluded from traditional financial markets and industries that did not cater to their religious requirements.

According to Sharia law, qard al-hassan loans are deemed to be acts of good faith, and loans that help those in need. Advancement of news relating to qard products and websites, and information technology means that qard al-hassan financial services are more readily available and searched for online, especially in Middle Eastern territories. This has enhanced the supply and demand of qard services. Historically, qard al-hassan loans have proved to be effective for economic growth, enhancing employment, and alleviating poverty.

In recent decades Islamic finance principles have become more mainstream. Two key components in Islamic finance are Islamic banking and Islamic insurance which is also known as takaful.

Takaful is a form of Islamic insurance, but it is different from conventional and western insurance policies. Geared towards a Muslim customer base, takaful involves a pooling system whereby members each pay money into a pool fund and effectively guarantee each other against losses and damages.

Essentially, takaful is a system within Islam of mutual insurance. It is based on the following principles

• mutual assistance
• solidarity
• co-operation

In addition, the takaful system is designed to be fully Sharia compliant and in line with Islamic principles relating to financial transactions.

That means takaful does not include any form of interest (riba), or unjust enrichment (gharar). Members who pool their funds are protected by each other by pooling their respective contributions. These contributions are then used to provide financial cover for those within the group who face a claim or a loss. The system of collection and distribution is an ethical and Sharia compliant experience for the participants.

This article will examine how takaful works, and the main Islamic principles relating to this form of insurance.

Principles Of Takaful

As mentioned above the three main principles relating to takaful are mutual assistance, solidarity, and co-operation that offer protection from losses.

These principles mirror the core Islamic finance principles that centre on ethical funding and social responsibility.

• Mutual assistance: this principle is based on reciprocal help. Participants or members of the takaful fund help each other out, and in doing so they share the risks and rewards of the scheme.
• Solidarity: the takaful system is based on principles relating to social solidarity. This reflects the ethical stance within Islamic finance which focuses on the benefit to society rather than the individual. The social solidarity aspect of takaful fosters and enhances the sense of community among the participants. What this means in reality for customers is that their financial needs are met, whilst they are also helping others.
• Co-operation: As it is based on the principle of mutual support, it is clear that co-operation is key for takaful schemes to succeed. Each member must agree to co-operate with the others for the greater good of the scheme.

How Does Takaful Work

Takaful involves the following components:

1. Pooling of contributions - participants all contribute to the fund which is managed by a takaful manager
2. Providing insurance coverage - the fund offers participants insurance coverage for specified risks
3. Processing claims - the takaful operator manages the claims
4. Costs - the cost of administering the takaful system is covered by the contributions made
5. Profit sharing - as there are no middlemen (as is the case in traditional insurance products), the profits are shared. This means that if a claim is made the takaful operator uses the funds already in the pool to settle the claim

TAKAFUL - IS IT REGULATED?
In many countries across the globe, there is regulation of takaful schemes. Especially in countries that have adopted Sharia law. In Muslim countries takaful sometimes forms part of government services and policies.

How takaful is regulated depends on the country and region you operate within. Typically, a takaful scheme will be governed by the insurance rules and regulations of that region.

The type of protection on offer includes insurance industry regulations, business regulations, tax laws, and consumer protection laws. You should always check the status of any takaful scheme before joining it.

Benefits Of Takaful Insurance

There are many different advantages of taking part in takaful insurance. The main benefit to Muslims is that they can benefit from an insurance scheme that is Sharia compliant.

Some of the other key benefits of takaful include the following:

• Flexibility: takaful insurance can be tailored to meet the specific needs of an individual or business.
• Ethical Investment: As takaful operates in compliance with Islam and Sharia rules, it means that is it an ethical and attractive option for those who want to invest in a socially responsible way.
• Mitigated Risk: Pooling contributions via takaful insurance reduced risk for all involved and also generates revenue to deal with insurance claims. Overall, takaful offers an ethical strategy when wanting to secure an insurance policy.
• Financial Protection: of course, one of the main benefits of takaful is the financial protection those within the pool are offered. This means policyholders have protection against unexpected events via the insurance policy and their business. product and asset collection can be covered.

Takaful In The United Kingdom

Takaful has increased in popularity in the United Kingdom with the increase in consumers and investors looking for ethical and alternative insurance options to protect assets and manage risk. Globally, there is also a demand for takaful projects, including in Kenya, the Middle East, South East Asia, and the wider African region.

In the UK, takaful insurance products are available and offer protection for a variety of risks such as life insurance, motor insurance, and health insurance. In fact, the UK takaful insurance industry has seen significant growth in the last decade.

Takaful Insurance

Those businesses and brokers offering takaful insurance usually work together with traditional insurance companies to create bespoke insurance coverage for their clients. Conventional insurance and investment products are based on underwriting risk. In contrast, takaful is based on co-operation and the pooling of funds.

Takaful insurance that is offered by brokers and businesses is subject to the same regulation as other insurance products. In the UK, takaful insurance is regulated by the Financial Conduct Authority (FCA).

Anyone looking for takaful insurance in the UK should ensure they approach reputable brokers and those who understand the concept of Islamic finance and Sharia law.

When doing research you can visit the website or online platform of the company offering the takaful insurance so you can assess how the company prices and offers the takaful product and find all the information you need.

Takaful is a great financial planning option for those people who want insurance cover that is Sharia compliant and aligns with ethical values.

WHAT IS A PENSION?

A pension is effectively a savings plan that is long-term. It is designed to help you save for your retirement and ensure that you can maintain your standard of living once you are no longer working, without having to worry about finances and bills.

Halal pensions are a Sharia compliant investment option for Muslims who do not want to compromise on their religious beliefs.

Halal Pensions

A halal pension is long-term savings plan that is compliant with Islamic rules relating to saving. Halal pensions are Sharia compliant.

Muslims are required to ensure that their money is managed and invested in a way that does not contravene the Sharia rules relating to finances, and this is why they look for halal pension products.

Difference Between A Conventional Pension And Halal Pension

As mentioned above, halal pensions are specifically geared towards Muslims, but can be utilised by anyone.

Halal pensions are different from traditional pension schemes as they each have different underlying principles and different investment strategies.

Many conventional pension schemes are not compliant with Sharia law and therefore not acceptable to Muslim savers.Halal pensions must have the following elements:

• No riba (interest)
• No maysir (gambling)
• No gharar (uncertainty)

Most traditional pension schemes invest in schemes that will not meet the above requirements. However, halal pension schemes have a Sharia compliant investment strategy. This means that the funds should be invested in assets that are Sharia compliant including real estate/ property and Islamic bonds.

In addition, halal pensions have a different management and market approach than traditional pension schemes. Halal pensions have to be managed in accordance with Islamic principles. These principles centre on the concepts of social and ethical responsibility which we will examine below.

Conventional pensions are more driven and focused on generating revenue and profits. The wealth and revenue growth of conventional pensions are often generated from risky or interest-based investment strategies.

Key Features Of Halal Pensions

If you work in the public sector and pay into a workplace pension it is very likely that you have a defined benefit pension. You should ask your employer for information relating to your pension so you can assess whether it is a defined benefit pension. If it is, then the pension should be halal.

Always check to see what fund your pension monies are located in.The main features of a halal pension include the following:

• Compliance with Islam and Sharia rules: this is fairly obvious but any pension you have must not contravene any Sharia rules about finances. Whilst you have a choice about which pension fund to invest in, it is your responsibility to make sure you seek expert opinion and advice about the investment and the operations of the scheme.
• Prohibited investment: for a pension to be deemed to be halal, investors need to make sure the monies are not invested in haram industries (gambling, porn, alcohol etc)
• No interest: this is one of the underlying concepts in Islamic finance. Sharia rules and guidelines strictly prohibit the payment of receipt of any form of interest. You should be sure to avoid haram bonds or any other investment instrument that relies on interest.
• Ethics: investors are faced with the obligation to act in an ethical and socially responsible way. This means that investments must align with the core Islamic value of transparency and fairness. Investments must adhere to Sharia rules and guidelines relating to finances.

Ethical And Social Responsibility

Halal pensions are designed to ensure that any investment is socially responsible and ethical. This is a fundamental principle of Islamic finance and must be adhered to.

Anyone who manages a halal pension needs to ensure that they do not invest in any industry, economy, market or product that would deemed to be unethical or haram under Islamic rules.

This means the pension monies cannot be invested in industries that are involved with gambling, porn, alcohol, and any other activities not permissible under Sharia rules.

Any profit or return from investment in these industries is haram

Importance Of Having A Halal Pension For Muslims

For Muslims, having a pension is an essential part of ensuring that they plan for their future.

Not only will having a pension provide you with an income for your future, but ensuring the pension is halal will increase its value for those who wish to remain Sharia compliant.

Workplace Pensions

In the UK, you should have a workplace pension, and your employer is legally required to contribute to your pension fund.

In addition to this, it is always a good idea to think about having a private pension. The main benefit of this, other than having a second pension pot, is that you can direct which pension fund to invest in and you have more of a say about where your pension is invested.

Having a halal pension means you have a savings plan that aligns with the ethical and religious values of Islam.

Key Benefits Of Having A Halal Pension

Some of the benefits of having a halal pension include the following:

• Compliance with Sharia law
• Alignment of personal values with financial planning strategies
• Accessibility to ethical investments
• Saving for retirement

Halal Pensions In The Uk

The popularity of halal pensions is growing in the United Kingdom and the rest of the world. Not only are they aimed at Muslims looking for Sharia compliant saving and pension plans, but they also attract ethical investors.

The number of banks and financial organisations offering halal pensions is increasing. Before approaching any organisation offering halal pension products you should always satisfy yourself that they are sufficiently registered and regulated by the FCA. You should also make sure the bank is fully aware of the rules relating to Islamic finance.

Please note that Qardus Limited does not provide financial advice.