The Defining Rule
The key rule of qard: the lender may not stipulate any benefit as a condition. Benefits covered by this prohibition:
- Extra money on top of the principal
- A service the borrower performs for the lender
- Any gift made because of the loan relationship
- Reduced pricing on goods sold by the borrower to the lender
What is permitted: voluntary gifts after repayment, not as a condition, not mentioned at the time of the loan. The Prophet repaid debts with something extra and said: “The best of you are those who are best in repayment.”
The Virtue of Lending
The hadith tradition ranks qard highly:
- “Every Muslim who lends another Muslim a loan twice is like one who gave it in charity once” — encouraging lending over charity as a form of respect for the borrower’s dignity
- Ibn Mas’ud narrated that the Prophet said: “I saw on the night of my ascension written on the gate of Paradise: ‘Charity is repaid tenfold and a loan is repaid eighteenfold’” — lending ranked higher in reward because the borrower is in need
Conditions for Valid Qard
- Fungible goods (mithliyyat): money, grain, oil — things repaid in kind, not the same items
- Certain amount: must be specified
- Transfer of ownership: the borrower becomes owner and may use the goods freely; the lender cannot reclaim the same physical items
- No stipulated benefit to the lender
- Term: may be specified (though Hanafi school says the borrower may repay early)
Qard Hasan in Islamic Finance
Contemporary Islamic banking uses qard hasan for:
- Interest-free overdraft facilities
- Internal lending between Islamic bank subsidiaries (regulatory capital arrangements)
- Benevolent loan funds (sanduq al-qard al-hasan) run by charities and Islamic social institutions
The Dawoodi Bohra community historically operated informal qard hasan networks through the Dawat institution.
See also: Fiqh Al Mudarabah, Fiqh Al Musharakah, Fiqh Al Dayn, Fiqh Al Rahn, Fiqh Al Hibah, Waqf