Local agricultural financing and Islamic banks: is Qard-al-Hassan a possible solution?

Abstract

Purpose -This paper aims to study Qard-al-Hasan (QH) (good loan) from the stand point of its possible application to agricultural farming with a view to augmenting the sources of Riba (interest)-free agricultural financing for Muslim farmers of Islamic countries like Pakistan. Design/methodology/approach -This paper is a study of QH (good loan) from the stand point of its possible application to agricultural farming with a view to augmenting the sources of Riba (interest)-free agricultural financing for Muslim farmers of Islamic countries like Pakistan. Findings -The study reports that Riba-free financing is essentially needed by poor Muslim farmers who, owing to prohibition of Riba, do not rely on interest (Riba)-based financing. The study also shows that QH is a viable option for fulfilling this need and is beneficial for the farmers as well as for the Islamic banks or financial institutions. Research limitations/implications -The case of QH as a potential mode of agricultural financing, as presented in this paper, is based on a theoretical or conceptual framework. The findings need to be further substantiated with empirical evidence. A future study, based on reliable empirical data would certainly add value to the subject. Originality/value -Islamic banks and financial institutions typically rely on Musharakah (partnership), Murabaha (sale with profit), Ijarah (leasing), Salam (advance payment sale), Istisna' (manufacturing contract), etc., and they rarely use QH as a mode of financing. Despite its huge utility, QH is practically non-existent in its application as an agricultural financing instrument. This paper presents a case for QH that can be adopted by Islamic banks or financial institutions for provision of the much needed financing for the small farmers of Islamic countries, as well as those living in non-Islamic countries.

Seleksi Saham Syariah : Perbandingan Antara Bursa Efek Indonesia Dan Malaysia

“…Saham merupakan instrumen keuangan di pasar modal yang merupakan bukti kepemilikan pemegang saham atas perusahaan. Saham syariah merupakan saham yang tidak bertentangan dengan aturan agama Islam dimana Al-Quran, Sunnah Nabi Muhammad SAW dan ijtihad para ulama adalah sumbernya (Saqib et al 2015). Agar saham dapat dimasukan ke dalam kategori saham syariah, ada beberapa kriteria yang harus dipenuhi oleh emiten.…”

Islamic Banks Concern with the Poor and Micro Businesses: An Evaluation on their Al Qard Hasan (Beautiful Loan)

“…This loan enables the fellow brethren to be financially assisted by the more fortunate Muslims (Saqib et al 2015). This zero interest loan is highly helpful for those who are in financial hardship (Necati 2015).…”

“…The practice of qard hasan is now prevalent in Muslim countries such as Bangladesh (Hassan 1999), Pakistan (Saqib et al 2015), Indonesia (Adnan & Ajija 2015) or even in the country where Muslim is minority such as Australia (Ahmad & Ahmad 2009). Todays, the qard hasan is also deemed as a manifestation of corporate social responsibility (CSR) because the main purpose of qard hasan and CSR is quite similar, that is helping poor people in society.…”

“…As the financing is not the same as loan, gaining additional return for profit is allowed. The common financing contracts in Islamic banks are murabahah (selling in installment), musyarakah (partnership with capital sharing between bank and customer), mudharabah (partnership with bank as capital owner), ijarah (leasing), and istishna (manufacturing contract) (Saqib et al 2015). In the financial reports of Islamic banks, qard hasan is located in balance sheet and it is categorized as account receivable of (qard funds).…”

Microfinance: Viable Approaches for Islamic Banking Implementation

“…In this case, the Islamic bank will bear the credit risk and they need to choose the right technique to ensure repayments to be received as agreed. In this regard, Saqib et al (2015) proved that qardh al-hasan is a viable option for fulfilling this need and is beneficial for the small farmers as well as for the Islamic banks or financial institutions. Obaidullah and Khan (2008) noted that the formal banking system, as it is structured currently, is not designed to serve the financing needs of the poorer segments of the Muslim society.…”