Qard

Qard (Arabic for "loan") is a contract in Islamic law under which one party transfers fungible property, most often money, to another, who becomes its owner and must later return an equivalent amount. The borrower repays the same quantity and type, not the same notes or coins. The defining condition is that the lender may not stipulate any benefit in return for the loan: any increase or advantage made a condition of lending is riba, which Sharia prohibits.

Qard is therefore classified as a gratuitous or charitable contract (aqd tabarru) rather than a commercial exchange. In modern Islamic banking it nonetheless plays a practical role, from current-account deposits to liquidity support for investment funds.

• Subject matter: only fungible property can be lent by qard, meaning things that are replaceable by an equivalent, such as money, grain or metals. A specific item such as a car is lent under a different contract, the gratuitous loan for use (ariyah), or leased under an ijarah.
• Transfer of ownership: the borrower owns the money once it is handed over, a point tied to the concept of possession, or qabd. The borrower may spend it and bears the risk of its loss.
• Repayment of the equivalent: the debt is fixed in amount. If a borrower owes 1,000 dinars, the debt stays 1,000 dinars, and most scholars hold that it is not adjusted for inflation by prior agreement.
• No stipulated benefit: neither a fixed increase, nor a percentage, nor a side benefit such as free use of the borrower's property may be a condition of the loan.

Jurists summarize the rule in a maxim: every loan that draws a benefit is riba. A loan with stipulated interest is the clearest case and is a form of riba al-nasi'ah, increase in return for time. The prohibition also catches disguised benefits, such as requiring the borrower to give the lender a gift, sell goods to the lender at a discount, or lend back in return, although schools differ on some of these.

A benefit the borrower gives voluntarily at repayment, without any condition or established custom requiring it, is generally permitted and even praised: the Prophet is reported to have repaid a camel with a better one. The difference lies between a gift freely made and an obligation built into the contract. Similarly, a lender may take security, such as a pledge (rahn) or a guarantee, because these protect the principal rather than add to it.

Islamic institutions that lend through qard may charge the actual administrative cost of the loan, but not a fee that varies with the amount or term, because that would act as interest. AAOIFI's Sharia standard on loans addresses this distinction, and regulators in several jurisdictions review such charges. Where a provider wants to earn a return, it uses a sale or partnership contract such as murabaha, musharakah or mudarabah rather than qard.

Current accounts

Many Islamic banks structure current-account deposits as qard: the depositor lends the money to the bank, which guarantees repayment on demand and may use the funds. Because the deposit is a loan, the bank may not promise a return on it, although some banks offer discretionary gifts (hibah) on savings accounts, a practice that scholars watch closely to ensure it does not become a customary obligation.

Liquidity support

In takaful, when the participants' risk fund runs a deficit, the operator commonly provides a qard to the fund, repayable from future surpluses. Fund managers in mudarabah and wakalah structures sometimes use qard in a similar way to smooth distributions, a practice that has drawn scrutiny when it amounts to a guarantee of returns.

Benevolent lending

A loan made purely to help the borrower, with leniency on repayment, is called qard hasan. It is the basis of Islamic microfinance programs and of interest-free welfare lending by mosques, charities and states.

Jewish law reaches a similar result through the prohibition on ribbit: a loan between Jews may not carry interest, and the community gemach lends without charge. Commercial needs in that tradition are met by the heter iska, just as Islamic finance turns to sale and partnership contracts. In both systems, the loan itself is kept as an act of assistance, and profit is earned through contracts that share risk or involve trade.