Definition of Qard
Qard (قرض) is the transfer of ownership in fungible (interchangeable) wealth to a person who is obliged to return wealth SIMILAR to it. Unlike a deposit (which must be returned in the exact same condition), a loan transfers full ownership and the borrower repays a like amount — not the same coins, but the same value and type.
Fungible Wealth: Wealth whose units are interchangeable and measured by quantity or weight. Examples: cash (money), grains, dates, oil. Non-examples: unique assets (a specific car), real estate, artworks.
Elements and Conditions (the Loan (Qard) standard)
Contract Formation: Qard is concluded by offer and acceptance using the word "Qard" (or "Salaf") or any other word/act that conveys the meaning. No specific formality is required.
Capacity Requirements: — Lender: Must have capacity to make a donation (Tabarru'). Minors and those lacking legal capacity cannot lend. — Borrower: Must have capacity to undertake transactions. Minors cannot borrow in their own right.
Subject Matter: Must be known, fungible, and marketable wealth. The borrower takes full ownership and becomes liable for a similar amount. Example: A lender provides 1,000 kg of wheat; the borrower owes 1,000 kg of similar wheat on return.
The Absolute Prohibition: Stipulated Excess (Riba) (the Loan (Qard) standard)
Core Rule: It is ABSOLUTELY PROHIBITED to stipulate an excess (Fadl) for the lender in a Qard contract. The excess can be in: (a) quality (better goods returned), (b) quantity (more units returned), (c) tangible things, or (d) benefits/services. The prohibition applies whether the stipulation is written, customary, or made at any stage of the contract or loan period. This is RIBA (usury) in its essence.
Example of Prohibition: A bank cannot loan AED 1,000,000 on the condition that the borrower repay AED 1,050,000 after 12 months. This is interest (Riba) and is forbidden.
Excess Benefit NOT Stipulated (the Loan (Qard) standard)
Prohibition on Voluntary "Repayment in Kind" Excess: Even if not stipulated in the contract, the borrower cannot VOLUNTEER to give the lender an excess benefit during the loan period IF this is done "for the sake of the Qard." Why? Because it might be tacit pressure or expectation. EXCEPTION: If giving excess benefits was already a CUSTOM between the lender and borrower BEFORE the loan contract, it remains permissible to continue.
Permissible Voluntary Excess at Repayment: At the time of SATISFACTION (repayment), the borrower MAY voluntarily offer an excess in quality, quantity, or tangible property — PROVIDED this is NOT stipulated and is NOT a custom. The key: it is spontaneous, not coerced. The lender can accept without Shari'ah violation.
Permissible Stipulations in Qard Contracts (the Loan (Qard) standard, –8)
Stipulation of a Period: The parties can stipulate a maturity date. The borrower is not obliged to repay before the period ends, and the lender cannot demand repayment until the period expires. If no period is stipulated, the lender can demand repayment on demand.
Stipulation of a Different Repayment Location: The parties can agree to repay at a different location from where the loan was made. For example: loan made in Dubai, repayment in Cairo. This is permissible.
PROHIBITED: Stipulation of a Commutative Contract in Qard: The parties CANNOT stipulate that a sale (Bay'), lease (Ijarah), or other exchange contract be part of the Qard contract. Such stipulation would convert the Qard into a disguised sale or lease.
Permissible: Reward for Raising Loans: A bank can charge a fee for the SERVICE of sourcing/arranging loans for others — provided this is not a Hilah (artifice) for dealing in interest. The reward must be for the service itself, not for the interest component.
Service Charges for Qard (the Loan (Qard) standard)
Actual Cost Rule: A lending institution can charge for ACTUAL services rendered — but only for the DIRECT, specific amount spent on that loan. The institution cannot charge indirect costs (salaries, rent, general overhead). Each loan bears only its own costs.
Indirect Costs NOT Includable: Salaries of employees, rental of space, transport, and general management expenses are NOT included in service charges. These must be absorbed by the institution as part of its operating model.
CRITICAL RULE: The institution must not charge more than the actual amount spent. All excess is prohibited and constitutes an illicit benefit. The Shari'ah Supervisory Board must lay down detailed methods for allocating direct costs, with documentation.
Modern Application: Current Accounts
A current account (checking account) is legally a QARd (loan from customer to bank), NOT a deposit. When a customer deposits AED 100,000 in a current account, the bank gains full ownership and is a debtor. The customer is a creditor. The bank must repay an equal amount on demand. Since it is a Qard, the bank cannot pay interest.