Islamic Commercial Law
(Fiqh Muamalat)
Topic 8
The Contract of loan (Al-qard)
Introduction
Qard refers to a gratuitous contract in which a
lender gives a certain homogeneous property to
a borrower on the condition that the latter is
responsible to return a similar property to the
lender immediately upon demand,
It is a type of temporary ownership transfer
without consideration,
Basically, it is intended to help a person who is
in need of cash.
Introduction
The provision of cash to a person in need is a
praiseworthy and recommended act for which a
Muslim is rewarded by Allah,
In the Hadith, the Prophet (saw) said, “In the
night of the journey, I saw on the gate of heaven
written, ‘reward for sadaqah is ten times and
reward for qard is eighteen times.’ So, I asked
the angel, how is it possible? The angel replied:
‘Because a beggar who asked had already had
something but a borrower did not ask for loan
unless he was in need’
Introduction
• In another Hadith by Abu Hurairah, the Prophet
(saw) said, “Whoever relieves a believer from a
difficulty in this world, Allah will relieve him
from his difficulty and Allah (swt) will facilitate
him in this world and world hereafter”.
Loan (Qard), Debt (Dayn), and
Borrowing Things (I’arah)
• While qard is a provision of cash to a
borrower, a “dayn” comes into existence
when the settlement of a certain financial
right created through contracts is postponed
to future,
• It is any deferred/unpaid price in a any
contract(sale, rent, etc.),
Loan (Qard), Debt (Dayn), and
Borrowing Things (I’arah)
• Similarly, “dayn” can be when a person
lends his money to another, while qard is
more specific and may arise via a loan
contract.
• Thus, debt (dayn) is a broader concept than
loan (qard) .
• Hence every “qard” is a “dayn”, but not
vice versa,
Loan (Qard), Debt (Dayn), and
Borrowing Things (I’arah)
• However, “I’arah” is a contract in which an
owner gives a certain usable property to a
borrower without consideration (discussed
in topic 6),
Important conditions for a loan ( qard )
contract include
• Lender/borrower should have complete legal
capacity,
• Transfer of loaned money to borrower’s possession.
• Unconditional ownership right to use the borrowed
money.
• Equality of the borrowed and repaid money,
• Specific date for the settlement of a loan (qard).
• No return or benefit upon lending money is allowed.
A Loan That Provides Conditional
Benefit to the Lender
• Any stipulation in a qard contract that benefits
the lender is prohibited,
• The qard contract must be free of any expected return or
benefit to the lender,
• In the Hadith “any loan which results in a benefit is
considered a form of usury”.
• Based on this Hadith, all Muslim jurists agree that any
condition that a debtor should return any additional
amount over the loan is prohibited,
A Loan That Provides Conditional
Benefit to the Lender
•However, there are some exceptions to this legal
rule.
–A lender may accept noncontractual or
noncustomary unstipulated benefit from the
borrower,
– A borrower may voluntarily return the loan with an
additional amount or in a better quality, and it is
recommended, if possible, to give better and an extra but
voluntarily,
Waiting or Giving Time to a Borrower Is
a Commendable Act
• Waiting or giving time is an Islamic concept that grants
the defaulting debtor an ease to repay when well-off,
• Quranic Verse 2:280: “If the debtor is in a difficulty,
grant him time till it is easy for him to repay. But if
you remit it by way of charity, that is best for you, if
ye only knew”.
• However, sometimes a debtor may default without any
valid excuse. Then, deliberate default cannot be charged
an extra amount as a penalty as it will constitute riba.
Waiting or Giving Time to a Borrower Is
a Commendable Act
• Similarly, a debtor who is able to settle the debt should
not delay to pay back his or her obligations, because this
behavior is prohibited by the Prophet (saw)
“Procrastination (delay) in repaying debts by a
wealthy person is injustice”,
• The debt of a deceased borrower should be paid before
any distribution of the estate (Quran 4:12). The heirs are
responsible for the repayment.
• The Prophet (saw) refrained to perform funeral prayer
on the dead who were in debt until the debt was settled,
Waiting or Giving Time to a Borrower Is
a Commendable Act
• For any qard contract, the creditor may demand a
guarantee or collateral security.
• If a debtor fails to pay back the loan, the creditor may
ask the guarantor to pay or to sell the collateral security
for the repayment of the loan,
END OF TOPIC 8
