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Qard Hasan, Wadiah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking


Mohammad Omar Farooq


Independent

November 19, 2010

Arab Law Quarterly, Vol. 25, No. 2

Abstract:     
The prohibition of riba is categorical in the Qur'an. Based on that prohibition, which is presumably further reinforced by hadith, loan or qard is considered ribawi, meaning that only gratuitous monetary loans are considered permissible in Islam. Modern Islamic banking is based on treating qard as ribawi. To avoid the presumed prohibition of profiting from monetary loans, deposits (particularly, demand deposits) are often structured as qard hasan, or wadiah/amanah (trust).

Based on pertinent material from the Qur'an and hadith as well as earliest Islamic discourse, this paper critically examines the presumed notion that (a) qard is ribawi and (b) whether the application of the concept of qard hasan or wadiah/amanah is coherent in the context of modern Islamic banking/finance.

The paper attempts to demonstrate that there is a great deal of confusion, misinterpretation and misunderstanding about qard and qard hasan, especially as applied to the modern Islamic banking practices. It also provides the context and framework in which such misinterpretation and misapplication occur.

Number of Pages in PDF File: 24

Keywords: Islamic banking, Islamic finance, Islamic banking/finance, qard, qarz, loan, qard hasan, qard al-hasan, qarz hasana, riba, interest, haram, deposits, wadiah, wadia, amana, amanah, demand deposit

JEL Classification: B19, E49, G21, N24

Accepted Paper Series





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Date posted: June 13, 2009 ; Last revised: November 26, 2010

Suggested Citation

Farooq, Mohammad Omar, Qard Hasan, Wadiah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking (November 19, 2010). Arab Law Quarterly, Vol. 25, No. 2. Available at SSRN: http://ssrn.com/abstract=1418202

Contact Information

Mohammad Omar Farooq (Contact Author)
Independent ( email )
No Address Available
United States
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