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Loan (Qard) - Scope of Standard

IM Research
By IM Research
6 years ago
Loan (Qard) - Scope of Standard


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  1. Shari ’ah Standard No. (19): Loan (Qard) Statement of the Standard 1. Scope of the Standard This Standard covers loans and the accompanying benefits or costs irrespective of the institution being a lender or a borrower. The Standard does not cover what is not a loan (Qard), like the price in a credit sale and investment accounts, because they have standards specific to them. 2. Definition of Qard Qard is the transfer of ownership in fungible wealth to a person on whom it is binding to return wealth similar to it. 3. Elements (Arkan) of a Loan (Qard) Contract and Its Conditions 3/1 The contract of loan (Qard) is concluded through offer and acceptance by the use of the words Qard and Salaf or any other word or act that conveys the meaning of Qard. 3/2 The legal capacity for making a donation is stipulated for the lender. 3/3 The legal capacity to undertake transactions is stipulated for the borrower. 3/4 It is stipulated for the subject-matter of the contract that it be known fungible (Mithli) marketable wealth. 3/4/1 The borrower comes to own the subject-matter of Qard (the wealth loaned) through possession, and he becomes liable for (the repayment of) a similar subject-matter. 3/4/2 The applicable rule is the return of an amount similar to the loan amount at the place where it was delivered. 4. Rules for Excess Benefit Stipulated in the Qard Contract 4/1 The stipulation of an excess for the lender in loan is prohibited, and it amounts to Riba, whether the excess is in terms of quality or 518
  2. Shari ’ah Standard No. (19): Loan (Qard) quantity or whether the excess is a tangible thing or a benefit, and whether the excess is stipulated at the time of the contract or while determining the period of delay for satisfaction or during the period of delay and, further, whether the stipulation is in writing or is part of customary practice. 4/2 It is permissible to stipulate the satisfaction (repayment) of Qard at a place other than that where the loan was made. 5. Rules for Excess Benefit Not Stipulated in the Contract 5/1 It is not permissible to the borrower to offer tangible property or extend a benefit to the lender during the period of the Qard when this is done for the sake of Qard, unless giving of such benefits is a practice continuing among the parties from a time prior to the contract of Qard. 5/2 An excess over Qard is permissible in terms of quantity or quality, or offering of tangible property or extending of a benefit, at the time of satisfaction when it is not stipulated or is part of custom, irrespective of the subject-matter of Qard being cash or kind. 6. Stipulation of a Period in Qard It is permissible to stipulate a period in Qard. The borrower is, therefore, under no obligation to return it prior to the termination of the period nor can the lender demand it back prior to the end of the period. If, however, no period is stipulated, it is binding upon the borrower to return its substitute ((Badal Badal)) on demand. 7. Stipulation of a Contract in Qard It is not permissible to stipulate a contract of Bay’ (exchange, sale) or Ijarah or other commutative contract within the contract of Qard. 8. Stipulation of a Reward for Raising Loans for Another It is permissible to stipulate a reward for raising loans for another as long as it is not a fictional device (Hilah (Hilah)) for dealing in Riba. [see item 8/3/2 of Shari’ah Standard No. (15) on Ju’alah at the end of which it is stated “with the condition that the transactions are not employed for raising interest bearing loans through stipulations, customary practice or dealings among Institutions”] 519
  3. Shari ’ah Standard No. (19): Loan (Qard) 9. Service Charges for Qard 9/1 It is permissible to a lending institution to charge for services rendered in loans equivalent to the actual amount directly spent on such services. It is not permissible to the institution to charge an amount in excess of such a service charge. All charges in excess of the actual amount spent are prohibited, and it is necessary to ensure precision in the determination of the actual charges so that they do not lead to an excess that can be deemed a benefit. The fundamental rule is that each loan bears its own specific charges, unless this becomes difficult as in the case of a group or common loan, in which case there is no restriction in the way of bearing direct collective charges for all the loans on the basis of the entire sum. It is necessary that the method of determining the charges be laid down by the Shari’ah Supervisory Board of the institution in detail, and this is to be done by distributing the expenses incurred among all the loans and each loan is to bear its share proportionately. An explanation of such circumstances is to be presented before the Board along with suitable documents. 9/2 Indirect expenses incurred in rendering services for loans are not included in actual expenses, like the salaries of the employees, the rentals of space, assets and means of transport as well as other management and general expenses of the institution. 10. Key Modern Applications of Qard Among the most important modern applications of Qard are the following: 10/1 Current accounts 10/1/1The reality of current accounts is that these are loans and not deposits. Thus, the institution comes to own the amounts and a liability to repay the amount is established against it. 10/1/2 It is permissible for the institution to demand wages for services rendered to the holders of the current accounts. 10/1/3 It is permissible for the institution to render services related to deposits and withdrawals to the owners of the current accounts with or without compensation like chequebooks and ATM cards and the like. There is no restriction on the institution 520
  4. Shari ’ah Standard No. (19): Loan (Qard) if it distinguishes between owners of current accounts with respect to what relates to deposits and withdrawals, like exclusive booths for receiving the owners of some accounts, or like distinguishing between the types or cheques. 10/2 Perquisites for Qard It is not permitted to the institution to present to the owners of current accounts, in lieu of such accounts, material gifts, financial incentives, services or benefits that are not related to deposits and withdrawals. Among these are exemptions from charges in whole or in part, like exemption from credit card charges, deposit boxes, transfer charges and letters of guarantee and credit. The perquisites and incentives that are not specific to current accounts are not governed by this rule. 10/3 Charges on credit cards for cash withdrawals from ATMs 10/3/1 The charges imposed on cards for cash withdrawals from bank teller machines are a charge for services and are independent of the loan. 10/3/2 It is necessary that the charges imposed on credit cards for cash withdrawals from bank teller machines be an amount that is certain within the limits of reasonable charges excluding profit from Qard. It is not permissible to link the charge to the amount withdrawn. It is not permissible to the institution to slice the withdrawals as a device for obtaining repeated charges just as it is not permissible (for this purpose) to take into account the period of repayment of the amount withdrawn. Where there is a difference in currencies, the application of the rate for the prevailing currency is stipulated. [see also item 4/5, Shari’ah Standard No. (2) on Credit and Charge Cards] 10/4 Overdrafts between the institution and its correspondents In order to avoid interest between the institution and its correspondents, there is no restriction if the institution comes to 521
  5. Shari ’ah Standard No. (19): Loan (Qard) an agreement with other correspondent banks to place a ceiling upon the overdrafts of one drawn upon the other without any claims for profits (interest). [See item 2/4/a of Shari’ah Standard No. (1) on Trading in Currencies] 11. Date of Issuance of the Standard This Standard was issued on 30 Rabi’ I, 1425 A.H., corresponding to 19 May 2004 A.D. 522