Qard Al Hassan (Benevolent Loans)

Qard Al Hassan (Benevolent Loans) is a type of loan provided to a society that is unable to obtain a loan through the formal banking system are participating in the small business. Is a kind of financing that the bank collects only the principal loan with miscellaneous expenses related to it. That is, the bank may set aside part of its fund to grant benevolent Loans to needy persons such as small producers, entrepreneurs, farmers who are not able to secure financing for investment or working capital from other alternative sources. While providing Benevolent Loans for the society at large, the bank shall collect principal amount and any loan processing and administering costs in the form of service fees without any profit or share in the profit or loss of the borrower. The loan shall be given for productive purposes in various fields to enable the beneficiaries to start independent lives or to raise their incomes and standard of living.

Qard Al-Hasan is an interest free loan, the only type of loan that is recognized in the Islamic law, where the borrower only repays the principal amount and the financial institutions are prohibited from charging profit. the Qard-al-Hassan is mostly provided to finance small and micro projects with a direct investment that allowed by Shari’ah/ Islamic contracts. Moreover, Qard-al-Hassan is a loan extended on a goodwill basis, and the debtor is only required to repay the amount borrowed. However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor. In the case that the debtor does not pay an extra amount to the creditor, this transaction is a true interest-free loan. Some Muslims consider this to be the only type of loan that does not violate the prohibition on „riba’, since it is the one type of loan that truly does not compensate the creditor for the time value of money

The objective of Qard-al-Hassan / Benevolent Loans

Establish better relationship among poor and the rich.
To help people in need
Mobilize wealth among all people in the society.
To encouraging and doing good deeds
Facilitate the poor to create new jobs and business ventures by using their merits, skills and expertise.
Strengthen the economy
Reduce unemployment and poverty from society, and
To create a concerned community
Reduce social and economical inequality.

Eligibility Criterion (in Ethiopian Banks that Provide Islamic Banking)

The individual should involve in small and micro business trading activities,
The loan shall be given for the account holders of Mudarabah Saving Account, Mudarabah Fixed time deposit Account, Safe keeping deposit Account /Wadiah-Amanah/ and current accounts /Qard/ .
As security for repayment of the loan and/or all other sums payable to the bank the Customer may give acceptable collateral.

Tuesday, April 23, 2019