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.
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.