Qard Hasan, Credit Cards and Islamic Financial Product Structuring: Some Qur’anic and Practical Considerations

Abstract

For all practical purpose, qard and qard hasan are generally regarded synonymous from orthodox Islamic viewpoint, because, due to the categorical prohibition of riba in the Qur’an, qard (loan) is considered ribawi (subject to the rules pertaining to riba prohibition), and therefore only gratuitous monetary loans – without any benefit to the lender - are considered permissible. The concept of qard hasan has gained new relevance and importance as it is being used to structure Islamic financial products, such as demand deposit products in banks and credit cards. Using qard hasan as the basis for such products leads to some serious anomalies. But more importantly, is the traditional understanding of qard hasan consistent with the Qur’an as well as hadith? What scriptural evidences are there to support the traditional understanding? Also, in light of the impact of credit cards on personal financial health, is the concept of qard hasan at all compatible with credit cards, and thus, structuring Islamic credit cards? In this paper, we focus on how the Qur’an illuminates this concept of qard hasan and also how it is treated in hadith. While evidence from hadith is looked at, the primary purpose of this paper is to examine the Qur’anic approach to this concept and practical implications for Islamic product structuring.

This conceptual paper critically examines the Qur’anic perspective on qard hasan and identifies implications that are seriously at odd with the traditional understanding and with some contemporary practices in Islamic banking and finance.