QARD – A FORGOTTEN CHAPTER OF ISLAMIC FINANCE

Abstract

Theoretically speaking Qard (interest-free loan) is true alternatetointerest-based loans of conventional banking system. Beingloan, it
has all good properties of interest-based loan and it lacks interest, the only bad component of interest-based loan. However, as ageneral rule no existing Islamic Bank offers Qard as a modeoffinancing – except rarely to non-business customers onhumanitarian ground only. This opinion paper traces Quran, Sunnah and Islamic history for Qard as a prime mode of financingof another person’s business. The paper is meant to advance Islamicfinance by providing a more powerful alternate mode of financingto interest-based loan. Secondly, the paper logically explores whyQard should be a mode of financing instead of interest-basedloan. Thirdly, the paper provides historical evidence that practicallyQardis a far better mode of financing as compared to interest-basedloan. Fourthly, the paper provides logical evidence that on regulatorygrounds Qard is far superior to existing mode of financingbeingused in Islamic banks. Fifthly, Qard based systemis far superiorforfinancing a government.

Keywords: Qard, Interest-based loan, Public Finance