Qard al-hasan: borrowing and lending without any return

What makes a loan a qard al-hasan?

The Quran describes lending to God a goodly loan, and the expression gives the contract its name. Any benefit stipulated for the lender, whether money, a gift or a service, turns the loan into riba. The only return sought is spiritual reward.

Repaying the principal and nothing more

The borrower owes the same amount, in the same currency, as was received. A borrower may voluntarily give something extra at repayment as a gift, but it cannot be promised, expected by custom or written into the agreement in any form.

Charging actual service costs

AAOIFI's standard on loans allows the lender to recover the real administrative cost of the loan, provided the fee is not linked to the amount or the duration. A percentage fee that grows with the sum lent is treated as disguised interest.

Taking security and guarantees

A benevolent lender can still protect itself. Pledges, guarantors and post-dated repayment schedules are permitted. The lender may also ask for documentation and credit checks, because responsible lending protects both the borrower and the pool of money that funds future loans.

Where does qard appear in modern Islamic finance?

Most Islamic current accounts are structured as qard: the depositor lends money to the bank, which guarantees repayment on demand but pays no return. The bank may still offer voluntary gifts, such as free services, provided they are not contractually promised.

Using qard as a social finance tool

Microfinance institutions, mosques, zakat funds and cooperatives use qard al-hasan to help students, small traders and families in hardship. Akhuwat in Pakistan built one of the largest interest-free microfinance programmes on this model, recycling repayments into new loans.

Seeing qard inside larger Islamic products

Banks sometimes add a qard element to other contracts, for example a short interest-free bridge while a murabaha or ijara is arranged. Combining a loan with a sale on condition is restricted, so these components need careful Sharia board review.

Recognising the regulatory position

Interest-free lending is still lending. Consumer-credit laws such as the UK Consumer Credit Act or Australian credit licensing can apply, although many jurisdictions exempt loans with no charges. Charities and cooperatives must check exemptions before running a regular lending programme.

Who can actually borrow on qard al-hasan terms?

Access is limited. Islamic banks rarely lend to the public for free because their depositors expect returns. Benevolent loans usually come from community bodies, credit cooperatives, mosque funds, employers or family, and often target hardship, education or small business start-ups.

Comparing community and institutional sources

Institutional schemes, such as hardship funds run by Islamic cooperatives, apply eligibility rules and repayment plans. Informal community lending is faster but carries relationship risk. Writing the loan down, as the Quran instructs in Surah al-Baqarah, protects both parties.

Applying for a benevolent loan step by step

Each scheme sets its own criteria, but applicants generally follow a similar route. Preparing documents early speeds up a decision, which matters when the need is urgent.

1. Identify a scheme that serves the applicant's area and need.
2. Check eligibility: membership, residency, income or hardship criteria.
3. Gather ID, proof of address, income evidence and a budget.
4. Explain the purpose and a realistic repayment plan.
5. Provide a guarantor or pledge if the scheme asks for one.
6. Sign a written agreement stating the amount and repayment dates.
7. Repay on schedule so that funds can be lent to others.

Knowing what costs and documents to expect

A true qard has no interest, but some limited costs can legitimately arise. The table summarises typical items; figures depend on each scheme and should be confirmed in writing.

What mistakes cause refusal or problems?

Benevolent funds are limited and must be preserved, so schemes decline applications that put repayment at risk. These issues come up most often.

• Requests far above the scheme's limit or purpose.
• No credible plan to repay from regular income.
• Missing documents or unverifiable hardship claims.
• Promising the lender an extra payment, which voids the contract's purity.
• Treating the loan as a grant and ignoring repayment dates.

Is a late-payment penalty allowed?

The lender cannot profit from delay. Some contracts oblige a borrower who can pay but refuses to donate a sum to charity, which the lender does not keep. A borrower in genuine difficulty should be granted more time, as Surah al-Baqarah recommends.

Can a qard be forgiven?

Yes. The lender may write off part or all of the debt at any time, and doing so for a struggling borrower is praised in Islamic teaching. Forgiveness can also be counted as charity, though rules on offsetting zakat against debts differ between schools.

Does a benevolent loan show on a credit file?

Informal loans between individuals do not. Loans from licensed lenders or credit unions may be reported to credit bureaux, which can help a borrower build a positive history. Applicants should ask the scheme whether it reports repayments before signing.

How is qard different from a gift or zakat?

A gift or zakat payment is never repaid. A qard creates a real debt that remains due until settled or forgiven. Zakat may be paid to a debtor unable to repay, but the lender's own loan cannot simply be relabelled as zakat.

Which bank accounts rely on qard?

Current accounts at many Islamic banks are qard-based. HBZ Bank's Sirat current account in South Africa and Islamic cheque accounts at Algerian banks such as CPA are examples. The bank guarantees the balance but pays no profit, unlike mudaraba or wakala savings accounts.

Does a qard deposit carry deposit protection?

Where the bank is a licensed deposit-taker, qard balances are usually covered by the national deposit guarantee scheme in the same way as conventional current accounts. Customers should check the protection limit and whether the bank is locally licensed or a foreign branch.