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The concept, structure and implications of benevolent loan in Islamic finance

19/06/2011 07:10:00 PM GMT   Comments ()     Add a comment   Print     E-mail to friend
A benevolent loan or Qardh-e-Hassan is where the borrower pays no interest.

As we all know that there is no room of interest or Riba in Islam, hence Islamic financial mechanism has provided us with various acceptable and adoptable concepts which can be used in our daily lives with as much ease as using normal banking products. All of us know that loan is a key concept and entity in any banking mechanism and with every loan there are various types of fees and interests involved. This is simply how the banking and finance works. However Islam provides us with the concept of benevolent loan, which offers easy to accept and work with conditions for the borrower, hence relaxing him from the tough conditions attached with a regular loan.

Normally such type of loans are issued by the wealthy and rich Muslims for needy Muslims who can’t repay a loan in short time or can afford the interest. While issuing a benevolent loan, a Muslim donor makes the borrower a complete owner of the property or the belonging which he/she has given in the loan. Normally a benevolent loan carries the following objectives:

· It definitely helps the needy people since they are paying no interest or installment for the loan.

· A benevolent loan offers to develop a good relationship between the rich and the poor in the society. The social fabric of any society is strengthened with such acts.

· By circulating more money through these types of loans, more and more economic activity is generated, hence making room for more jobs and better financial conditions.

· The overall wealth in the society accumulated by the rich can be mobilized by such acts.

· Benevolent loans and other similar financial initiatives cam help erase the social and financial discrimination in any society.

· Non-Muslims can get a softer and clearer image of Islamic finance with such types of loans where no interest in involved and borrower is the sole beneficiary.

An ideal Islamic society always encourages the flow of money in all directions so that a uniform financial surface can be attained where the difference between the rich and poor is minimized. A rich Muslim should be as conscious and caring as any other fellow Muslim brother and he/she should use his/her wealth to help the poor Muslims in the family, neighborhood or city. If the borrower is unable to pay the loan in the scheduled time span, the donor Muslim should allow them extension in time so as to proof that it is not the money that matters but the mutual care and effort for the needy people.

Source: Al Arabiya Digital

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