SS 19: Loan (Qard)
What this standard is about
Qard is an Islamic loan: the lender transfers ownership of fungible wealth (money or replaceable goods) to the borrower, and the borrower must return wealth of the same kind. The standard covers loans and any benefits or costs linked to them, whether the bank is the lender or the borrower. It does not cover credit-sale prices or investment accounts, which have their own standards.
A Qard contract is made through offer and acceptance, using the words Qard or Salaf or any words or acts that mean the same. The lender must have the legal capacity to give a donation, since lending in Islam is treated as a charitable act. The borrower must have the legal capacity to make transactions. The loaned wealth must be known, fungible (Mithli), and marketable. The borrower becomes the owner once it takes possession and owes back a similar amount, normally at the place where it was delivered.
The core rule concerns any extra benefit. Any stipulated extra for the lender is prohibited and counts as riba (interest or usury), whether the extra is in quality or quantity, in cash or in some other benefit. This applies whether the extra is agreed at the time of the contract, during a delay in repayment, written down, or simply expected by custom. The standard also covers loans made by banks to customers through current accounts: the bank may not give account holders gifts or incentives unrelated to deposits and withdrawals, and charges on credit cards for ATM cash withdrawals must be fixed, reasonable service fees, excluding any profit from the loan.
Why it exists
A loan in Islam is meant to be a benevolent act (Qard Hasan) that helps someone in need, not a way to earn a return. Without clear rules, lenders could attach fees and benefits that are really interest in disguise. The standard draws the line between allowed administrative practices and prohibited extras.
The key rules, simply put
- A loan means the lender hands over fungible wealth and the borrower returns a similar amount — nothing more may be demanded.
- Any extra benefit stipulated for the lender is riba (interest) and is prohibited, whether agreed at contracting, during delay, written, or customary.
- The loaned item must be known, fungible, and marketable wealth.
- The borrower owns the loaned wealth through possession and becomes liable to return a similar amount, normally where it was delivered.
- A bank may treat current-account holders differently only on matters linked to deposits and withdrawals, such as dedicated service counters.
- A bank may not give current-account holders gifts, fee waivers, or other perks unrelated to deposits and withdrawals.
- Charges for ATM cash withdrawals on credit cards must be fixed, reasonable service fees, not linked to the amount withdrawn or the repayment period.
An everyday example
A customer borrows $5,000 from an Islamic bank under a Qard contract. She must return exactly $5,000. The bank cannot require her to pay $5,200, give the bank a gift, or offer free services in exchange. If she uses a credit card at an ATM, the bank may charge a fixed reasonable fee for the service of giving her cash, but it cannot scale that fee with the amount she withdraws or how long she takes to repay.
Words to know
- Qard — a loan in which the borrower returns wealth similar to what was received
- Riba (interest) — any guaranteed extra charged on money, which Islam prohibits
- Mithli (fungible) — wealth replaceable by an identical equivalent, such as money or wheat
- Qard Hasan — a benevolent loan given without expecting any return
- Salaf — another word for Qard used in forming the contract
Source
- AAOIFI Shariah Standard No. 19 — https://islamicmarkets.com/publications/loan-qard-scope-of-standard