Accounting for Islamic financial transactions
FN 6103
Qard al-Hasan
Omer Bin Thabet
0880944
1
Qard al-Hasan
2. Introduction
The return of loans in conventional banks is an interest (riba) which based on the amount,
the time of loan, and the risk. As we know riba is prohibited in Islam. The question is
what the alternatives of this transition in Islam? Islam comes out with two types of loans:
loan with condition of repayment and gratuitous loan (qard al-hasan) without any
compensation or gift. Therefore, this essay will criticize second type of loan in Islam that
called Qard al-hasan.
The purpose of qard al-hassan in Islam is to make brotherhood among the Muslims (rich
and poor). The main principle of brotherhood is to care and share each other. Qard alhasan being a gratuitous loan can help the fellow Muslim brothers who need money but
they do not have. Thus, qard al-hasan enhances brotherhood among the Muslims.
The word qard is derived from Arabic qirad which means 'to cut'. It is called qard, as it
cuts certain part of the lender's property by giving loan to the borrower. Hasan is also an
Arabic word, which originates from ihsan. Ihsan means kindness to others. Qard al-hasan
is a loan which is returned at the end of the agreed period without any interest or share in
the profit or loss of the business,(M. Umer Chapra).
In six verses in the Holy Qur'an, Allah has encouraged by give greater reward for rich
Muslims how lend their money to the needy fellow people for example the following
verse:
Who is he that will give Allah qard al-hasan? For Allah will increase it
manifold to his credit. [Al-Hadid (57:11).
2. Discussion
The above explanation shows that qard al-hasan is unique Islamic alternative of loan, but
the acceptance of this product in Islamic banks is still in infancy stage in some Islamic
2
banks and not exists in other. Therefore, the following discussion will focus on valid qard
al-hasan been practice within contemporary issues that may affect its validity.
Administrative fees:
Before there is a large debate among Muslim jurists about the administration fees itself
and the amount that may Islamic charge for qard al-hasan. At the present, there is
consensus among then about this issue. However, there is no scope for an individual
lender to demand this charge unless any amount incurred due to procedural requirements
of the loan agreement, such as lawyer's fee, stamp duty etc These expenses incurred by
banks on providing al-qard al-hasan are collected from the borrowers and the basis for the
calculation of these expenses is laid down by the central bank. This does not means the
bank have right to charge the borrowers its general overhead expenses. Therefore, this is
one of interesting area in qard al-hasan needs to debate about; I will let this job to expert
scholars in that area.
Extra Payment:
It is well known that in the qard al-hasan contract there is no condition for extra payment,
otherwise, it will be riba. In some cases, Islamic banks give some sort of gift to the
creditor as a sign of appreciation of his voluntary deed. Moreover, Muslim jurists have
various opinions relating to extra payment over loan. The Hanafi, the Shafi'e and the
Hambali's stand is that every loan with profit is forbidden if the profit is stipulated in the
loan agreement, otherwise, the profit is permitted. According to Malikis, the borrower
may pay more than the capital quantitatively or qualitatively at the time of the settlement
of the loan provided if the loan was used for commercial purpose. They restricted the
extra benefit from the loan if it was used for consumption purpose.
Indeed, the majority's view is more reasonable, it is up to the loanee whether to pay extra
or not, regardless the loan was for consumption or commercial purpose. The only
3
restriction is that there should not be any stipulation for extra benefit in the loan contract.
Early demand to pay back:
The pay back of qard al-hasan is covenant of loanee must be accomplish, otherwise, the
punishment will due from Allah hereafter, Allah says, then for having broken their
covenant, we rejected them and caused their hearts to harden (5:13).
The issue here is Islamic bank allows asking loanee to pay before the due date of qard alhasan? Muslim scholars have deferent opinon for this issue. Shafi'e and Hambali jurists,
the banks can demand the settlement from the loanee before the expiry period as he
wishes, their reason for that, qard al-hasan is voluntary and it can not compel any party to
abide it (like current account customer can ask for it any time) . On the other hand,
Hanafi and Maliki jurists are of the views that the creditor can not demand the loan
amount back until the time for settlement mature because the Prophet (s.a.s) said,
Muslims are bound by their conditions except a condition that changes halal into haram
or haram into halal. (Al-Muatta of Imam Malik).
Guarantors:
In the case of the qard al-hasan, there can be guarantors. The guarantors of the borrower
may be any person or the property of the loanee that is collateral security, such as,
mortgage, charge etc. In case of the borrower's failure to pay back the loan after the
expiration of the time specified, his guarantor has to pay or the collateral security is to be
valued for the repayment of the loan. But, Muslims should remember that a true believer
should not delay to pay back his obligations. As the Prophet (s.a.s) said, "Deliberate
delay of a rich borrower to settle the loan is injustice." (Sahih Bukhari & Muslim).
Since qard al-hasan exists to help poor Muslims, needy people will find difficulties to
find things to give to banks as guarantee to get qard al-hasan. I think this is the main issue
in qard al-hasan because most needy Muslims don't have anything to use to survive that’s
4
why they ask for qard al-hasan, otherwise, they will sale what they have to survive
instesd of creating more obligations for themselves.
This may justify law use of qard al-hasan in Muslim countries. Because, creditors can not
give lend their money without guarantee for payment in the other hand loanee don't have
enough property to overcome this guarantee.
In sum, qard al-hasan faced some obstacles that may reduce its adoption in Islamic banks
from debtors and creditors point of view such as administrative fees, extra payment, early
of payment and guarantee of payment. These issues have deferent opinion among Muslim
jurists which means that issues will be there until they agree about it. Consequently, the
implementation of qard al-hasan in Islamic banks will be law.
3. Conclusion
Islam prohibited all kinds of loan with interest (riba), as alternative of that it proposed the
qard al-hasan to enhance the brotherhood among Muslims. Yet, the implementation of
this islims unique instrument is still law among Muslims.
This law of adoption is due to issues that have deferent opinions between muslim jurists.
For instance, the amount of administrative fee that may bank charges loanee, some
scholars' say this charge should not includes the general overhead of Islamic banks.
Another issue the extra payment, some Muslim jurists such as Maliki jurists claims if the
purpose of qard al-hasan for commercial purpose, loanee should pay extra money. The
early payment of qard al-hasan has disagreement among scholars too. Finally, the
guarantor of qard al-hasan considered as a main issue here because loanee have nothing
to meet this condition to get qard al-hasan.
Therefore, qard al-hasan will still rarely to use unless muslims jurist find way to
overcome these issue.
5
6