Application of Qard and Qard al-Hasan

Bismillah and assalamualaikum. This is only my executive summary on the topic I was assigned to present to the whole class. Alhamdulillah the presentation went well even though it was like the whole day standing in front the class, answering some questions and having further discussion regarding the topic. Haha. Anyway, it's only a summary so don't expect much. Enjoy! hope it may benefit even a little. *wink*

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nak duit tak? hee

This individual assignment analyzes the application of Qard and Qard al-Hasan contracts in Islamic banking and finance products and services in Malaysia. It covers the legitimacy of qard from Quran, introduction of qard al-hassan and qard, components of the contract, product chosen and its modus operandi, opportunities and challenges on the contract, related issues and also course of action proposed regarding the contract.

Qard al-hasan is a zero-return financing that Al-Quran urges Muslims to make available for those who need it. In addition, the practice of this contract complies with Shariah due to non-involvement of riba since it is prohibited in Islam. Yet, due to some issues that may arise from the implementation of Qard al-Hasan as a financial product, the Shariah Advisory Council (SAC) has removed the word ‘Hasan’ from the term ‘Qard al-hasan’ implying the obligation of the borrower to repay the lender.

Bank Negara Malaysia defines qard as a contract of lending money by a lender to a borrower where the borrower is bound to repay an equivalent replacement amount to the lender. This contract consists of three components namely, (1) contracting parties; borrower and lender that must have legal capacity, (2) offer and acceptance that can be expressed orally, writing or any method recognized by Shariah and also (3) money as a subject matter.

 curi gambar dari website KFH hehe

The product selected in this assignment is Basic Savings Account-i offered by Kuwait Finance House (KFH) Malaysia which implemented qard as its underlying contract. The Basic Savings Account-i is an account that is classified as a deposit under the Shariah principle of qard (non-interest bearing loan). Under this principle, the money deposited into this account is not subject to any risk on investment nor is exposed to profit or loss. When demanded, the bank will pay the Customer the total sum or part thereof standing to the credit of the customer's account without any disbursement of hibah. The customers’ deposits in the Basic Saving Account-i shall constitute benevolent loan to KFH Malaysia by the customers as long as it remains in the account.

With regard to the product, KFH actually has a bright opportunity to accumulate capital from the deposits to be invested hence create their own profit since they are not going to share the profit with the depositors as a hibah. As for the challenges, it may lead to a lower attraction of depositors to deposit their money in Basic Savings Account-i obviously because some are expecting for the return they may receive later. Also, if banks happened to exercise qard as a financing tool it will trigger to non-performing loans, lower profit maximization, less competitive as well as create moral hazard to the banks due to the disadvantages of the contract itself.

This assignment also highlights some issues that arise by implementing qard contract which any institution has to take care of. Firstly, to make sure there is no pre-determined contractual benefit to the lender because any benefit given to the lender based on qard contract will be considered as riba. Next, granting hibah in qard should not be promoted or promised and lastly, the arrangement of qard contract with fees must only cover the actual cost involved and not related to the qard amount.

In conclusion, qard contract is actually only suitable to be practiced as a deposit and not for the financing since the nature seems would discourage Islamic financial institutions’ activities to compete with the well-established conventional institutions. Unless they are doing some arrangements of qard with any other contract like ar rahn or wakalah and thorough screening process of their potential customer, then only they can consider. Yet still they have to be extra careful when transacting with qard contract in order to confront with Shariah. 

You read it till the end. thank you!

WISHING YOU A BEAUTIFUL SUNDAYYYYY EVERYBODYYYYY :)