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Qarḍ Ḥasan, Wadī ʾah/Amānah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking

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Based on the categorical prohibition of ribā in the Qurʾān, presumably further reinforced by Ḥadīth, qarḍ (loan) is considered ribawī, i.e., only gratuitous monetary loans are considered permissible. Deposits (particularly, demand deposits) in Islamic banks are often structured as qarḍ ḥasan, or wadīʾah/amānah (trust). Based on the Qurʾān, Ḥadīth and earliest Islamic discourse, this article examines whether qarḍ is ribawī and whether the application of the concept of qarḍ ḥasan or wadīʾah/amānah is coherent in the context of Islamic finance.

1. FN11 Sunnah and Ḥadīth are not synonymous. However, particularly since the time of Imām Shafīʿi [d. 204 AH], the founder of the Shafīʿī school of jurisprudence, there has been rather broad agreement that Ḥadīth must be the basis for authentication of any Sunnah. Therefore, the particular textual source for Sunnah is Ḥadīth.
2. FN22 Nicholas D. Roy, “The Medieval Islamic System of Credit and Banking: Legal and Historical Considerations”, ALQ, 12/1 (1997) 43-90. In this work, Roy documents that credit—any transfer of the ownership of a property and its risk of loss not against an immediately perceived countervalue, but against an obligation to provide such countervalue at a later time—“was used extensively in the medieval Near East, and that it formed a fundamental part of the existing economic system, on all levels, from producer, to merchant, to consumer.” (44, 49).
3. FN33 This observation, representing the traditional view, was made by the Director, Institute of Islamic Finance, Essex, England on IBFnet (Islamic Banking and Finance Network), message #5601,
4. FN44 Mohammad Omar Farooq, “The Riba-Interest Equation and Islam: Reexamination of the Traditional Arguments”, Global J. Fin. Econ., 6/2 (2009a) 99-111.
5. FN55 Mahmoud El-Gamal, “An Economic Explication of the Prohibition of Riba in Classical Islamic Jurisprudence”, Proc. 3rd Harvard Univ. Forum Islamic Fin., Harvard University, 2000, 31-44.
6. FN66 Abdulkader Thomas, “What is Riba?” in: Abdulkader Thomas (Ed.), Interest in Islamic Economics (London: Routledge, 2006), 125-134.
7. FN77 Abdullah Saeed, Islamic Banking and Interest: A Study of the Prohibition of Riba and its Contemporary Interpretation (New York: Brill, 1996), 36-39. Also, see Mohammad Omar Farooq. “Riba, Interest and Six Ḥadīths: Do We Have a Definition or a Conundrum?” Rev. Islamic Econ. 13/1 (2009b) 105-142.
8. FN88 Qurʾān 3 (al-Imrān):7; trans. “of established meaning”, A. Yusuf Ali, “clear revelations”, Pickthall; “decisive”, Shakir.
9. FN99 Mohsin S. Khan and Abbas Mirakhor, “Islamic Banking: Experience in The Islamic Republic of Iran and in Pakistan”, Econ. Dev. Cultural Change 38/2 (January l990), 353-376.
10. FN1010 Imran Ahsan Khan Nyazee, “Islamic Law of Persons Glossary”, Retrieved 15 December 2007 from
11. FN1111 WorldofIslam Portal, “A Glossary of Islamic Economic Terms”, online at:, retrieved 15 December 2007.
12. FN1212 “Glossary: Definition of major Islamic finance instruments”, online at:, retrieved 15 December 2007. The Board of Advisors of this organization includes, among others, Monzer Kahf, M. Nejatullah Siddiqi, Abdulkader Thomas, and so on.
13. FN1313 Ziauddin Ahmad, “Islamic Banking: The State of the Art”, IDB Prize Winners’ Lecture Series—No. 2, IDB-Islamic Research and Training Institute ( Jeddah, Saudi Arabia, 1994); Munawar Iqbal and Philip Molyneux, Thirty Years of Islamic Banking: History, Performance and Prospects (Palgrave Macmillan, 2005), 41.
14. FN1414 Iqbal and Molyneux, ibid., 41.
15. FN1515 Volker Nienhaus, “The Performance of Islamic Banks: Trends and Cases”, in: Chibli Mallat (Ed.), Islamic Law and Finance (London: Graham & Trotman), pp. 129-170, 131.
16. FN1616 Ahmad, supra note 13, 17.
17. FN1717 Mohammad Obaidullah, Islamic Financial Services, Islamic Research and Training Academy, Jeddah, 2005, p. 44.
18. FN1818 Ibid., 44-45.
19. FN1919 Ausaf Ahmad, “Contemporary Practices of Islamic Financing Techniques”, IDB Islamic Research and Training Institute, Research Paper #20, 1993.
20. FN2020 Mohammad Hashim Kamali, Principles of Islamic Jurisprudence (Cambridge, UK: Islamic Texts Society, 3rd edn., 2003), 335.
21. FN2121 Ibid., 45.
22. FN2222 IBFnet. “Further Grounds for Justifying an Islamic Model of Life Insurance Policy”, undated;
23. FN2323 Islamic Finance Training. Glossary, online at:
24. FN2424 Islamic Banking and Finance Institute Malaysia, Glossary, online at:
25. FN2525 The clarification was sent by Shah Abdul Hannan, the former Chairman of IBBL by e-mail on 11/14/2006.
26. FN2626 See the commentary to #2401 in Sunān Ibn Mājah, Kitāb aṣ-Ṣadaqah, Bāb al-Wadīʾah, Vol. 3, Muhammad Tufail, translator (New Delhi, India: Kitāb Bhavan, 2000), 421.
27. FN2727 Supra note 17, pp. 50, 128.
28. FN2828 Ibid., 128, 139.
29. FN2929 Islamic Bank of Britain, ‘Glossary of Islamic Terms’, online at:;jsessionid=6BF3AE25FFE790CA09F1473404E90C6A, retrieved 18 December 2007. Also see Ahmad, supra note 13.
30. FN3030 Canada Deposit Insurance Corporation, ‘Glossary’, online at:, retrieved 15 December 2007. Also see Federal Reserve Bank, Cleveland, OH, ‘Glossary’, online at:, retrieved 15 December 2007; Ludwig Von Mises Institute, ‘Mises Made Easier’, from, retrieved 15 December 2007.
31. FN3131 For further examples, see TIAA-CREF, ‘Investment Glossary’, online at:, retrieved 16 December 2007; Trinidad and Tobago Deposit Insurance Corporation, ‘Deposit Insurance Glossary’, online at:, retrieved 16 December 2007; FAO, ‘Glossary of Terms for Agricultural Insurance and Rural Finance’, online at:, retrieved 16 December 2007.
32. FN3232 Iqbal and Molyneux, supra note 13, 39.
33. FN3333 State Bank of Pakistan, “Glossary of Islamic Banking”, in: Myhammad Ayub, “Islamic Banking and Finance: Theory and Practice”, SBP (undated), online at:, retrieved 15 December 2007.
34. FN3434 IMF, “Islamic Banking”, Appendix to “Monetary and Financial Statistics Manual September 2000”, from online at:, retrieved 15 December 2007.
35. FN3535 Supra note 33.
36. FN3636 Ahmad, supra note 13, 6, 38. For definition of salam, see Arab Finance House, ‘FAQ/Glossary’, Retrieved 17 December 2007 from
37. FN3737 Merriam-Webster Dictionary, Retrieved 15 December 2007 from; Oxford Advance Learners Dictionary, Retrieved 15 December 2007 from; ‘Federal Student Aid’, Retrieved 15 December 2007 from
38. FN3838 Mahmoud El-Gamal quotes this in his presentation, “The recent Azhar fatwā: Its logic, and historical background”, 2003, online at: 2003—Elgamal Azhar Fatwa.pdf, retrieved 16 December 2007.
39. FN3939 “Origins and Operations of Takāful System”, retrieved 15 December 2007 from This view is based on fatwā of the Shariʾah Advisory Board of al-Rajhi Bank, dated April 2001.
40. FN4040 Frank Vogel and Samuel Hayes, III, Islamic Law and Finance: Religion, Risk, and Return (London: Brill, 2006), 131; referring to cf. Decision 1, third session (1986), Fiqh Academy Journal (fatwā specifically for the Islamic Development Bank). Also see Mohammad Nejatullah Siddiqi. “Riba, Bank Interest, and the Rationale of its Prohibition,” Jeddah: Islamic Development Bank, Visiting Scholars Research Series, 2004, 119.
41. FN4141 Omar Imady and Hans Dieter Seibel, “Principles and Products of Islamic Finance”, University of Cologne Development Research Center, 2, online at: Principles and products of Islamic finance.pdf, retrieved 17 December 2007.
42. FN4242 Vogel and Hayes, III. supra note 40, 79-82.
43. FN4343 A.J. Wensinck, Concordance et indices de la tradition musulmane, Leiden, 1936-1969. This comprehensive concordance is in Arabic. A computerized search on a comprehensive database turned up a single report in Musnāf of Ibn Abī Shaiba, a lesser known source, where qarḍ ḥasan is mentioned. [#2245] However, it is also in a spiritual context and furthermore it is not a Ḥadīth, but athār. So, essentially the expression qarḍ ḥasan does not merely occur in nine Ḥadīth collections, but in reality it occurs in none at all.
44. FN4444 See Vol. 3, Book of Loan, Chapter 17, p. 346. Often under the Chapter title, Bukhārī shares verses from the Qurʾān that he deemed pertinent to the chapter. He also frequently shares juristic positions of eminent sahabas under Chapter titles. However, such opinions are basically on the authority of Bukhārī himself. While each Ḥadīth is included with its isnād (chain) of narration, those juristic opinions are included without any chain.
45. FN4545 Ibid., 338.
46. FN4646 Online at:
47. FN4747 Islamic Banking Courses, ‘Glossary’, online at:, retrieved 18 December 2007.
48. FN4848 Ṣaḥīḥ Bukhārī, Arabic-English, translated by Muhammad Muhsin Khan, Islamic University, Madinah, Saudi Arabia (undated), Vol. 3, Book of Loan, Ch. 17, 346. Often under the Chapter title, Bukhārī shares verses from the Qurʾān that he deemed pertinent to the chapter. He also frequently shares juristic positions of eminent sahabas under Chapter titles. However, such opinions are basically on the authority of Bukhārī himself. While each Ḥadīth is included with its isnād (chain) of narration, those juristic opinions are included without any chain.
49. FN4949 Vogel and Hayes, supra note 40, 71.
50. FN5050 Ibid., 71.
51. FN5151 Ibid., nos. 16, 71.
52. FN5252 Ṣaḥīḥ Bukhārī, Vol. 3, p. 346. For more such juristic observations, see Muwaṭṭa Imām Mālik, Trans. by M. Rahimuddin, (Lahore, Pakistan: Sh. Muhammad Ashraf, 1985), 305. None of these refers to either the Qurʾān or any statement or action of the Prophet as reference.
53. FN5353 Qurʾān 64 (al-Tagabun):16-17.
54. FN5454 Abdullah Yusuf Ali, The Holy Qurʾān: Text, Translation and Commentary (New York: Tahrike Tarsile Qurʾān, 1988), no. 5500, 1560.
55. FN5555 Qurʾān 57 (al-Ḥadīd ):10-11, 18.
56. FN5656 Commentary on Q57(al-Ḥadīd ):11 by Muhammad Asad, The Message of the Qurʾān (Gibraltar: Dār Al-Andalus, 1980), 837, #11.
57. FN5757 Qurʾān 5 (al-Māʾida):12. For relevant commentaries, see Azad, The Tarjuman al-Qurʾān, trans. by Syed Abdul Latif (New Delhi: Kitāb Bhavan, 1990), Vol. 2, 113; Sayyid Abul ʿAla Maududi, Towards Understanding the Qurʾān (Leicester: The Islamic Foundation, 1996), Vol. II, no. 33, 142.
58. FN5858 Qurʾān 2 (al-Baqarah) 244-245.
59. FN5959 Maududi, supra note 57, Vol. I, no. 267, 187; Ali, supra note 54, 275, 97; Asad, supra note 56, 54, no. 234; Irfan Ahmad Khan, Reflections on the Qurʾan, Vol. I (Leicester: Islamic Foundation, 2005), 614.
60. FN6060 Qurʾān 9 (at-Taubah) 111.
61. FN6161 Ibid.
62. FN6262 Saeed, supra note 7, 11, quoting Rashid Rida, al-Ribā wa l-Muʾāmalāt fī l-Islām (Cairo: Maktabāt al-Qahira, 1959).
63. FN6363 Farhad Nomani, “The Interpretative Debate of the Classical Islamic Jurists on Ribā (Usury)”, Proc. 22nd Annual Meeting MEEA, Topics in Middle Eastern and North African Economies, electronic journal, Vol. 4, Middle East Economic Association and Loyola University Chicago, September, 2002.
64. FN6464 Qurʾān 2 (al-Baqara): 279; Nabil A. Saleh. Unlawful Gain and Legitimate Profit in Islamic Law: Ribā, Gharar and Islamic Banking (Cambridge University Press, 1986), 35-36, referring to Sanhuri, Masādir al-Haqq, Vol. III, 237.
65. FN6565 Mohammad Omar Farooq, “Stipulated Excess in Understanding and Misunderstanding Ribā: The Al-Jaṣṣāṣ Link”, ALQ, 21/4 (2007), 285-316. Also see Saleh, ibid., 27.
66. FN6666 Saeed, supra note 7, 36-39; also, see Farooq supra note 7.
67. FN6767 Yusuf Al-Qaradawi, The Lawful and the Prohibited in Islam (India: Hindustan Publ., undated), 265-266.
68. FN6868 Farooq, supra note 4.
69. FN6969 Farooq, supra note 65.
70. FN7070 Sahīh Bukhārī, Vol. 3, Book 41, no. 579; Sunān Abū-Dāwūd, translated by Ahmad Hasan (New Delhi, India: Kitāb Bhavan, 1990), Book 22, no. 3330; Imām Nawawi, Riyadus Saleheen, translated by S.M. Madni Abbasi (Karachi: International Islamic Publ., 1983), nos. 1375, 1374.
71. FN7171 Muftī Muḥammad Taqi Usmani, “The Text of the Historic Judgment on Interest”, 1999, Retrieved 19 December 2007 from, section no. 101; referring to Sunān al-Baihaqi and Musnād of Harith Ibn Abi Usamah.
72. FN7272 Ibid., Section 101.
73. FN7373 Ibid., Section 105.
74. FN7474 Islami Bank Bangladesh Limited, ‘Islamic Banking: Some Conceptual Issues’, undated, Retrieved 19 December 2007 from
75. FN7575 The translation, Excerpt on Ribā from Ahkām al-Qurʾān, online at:, retrieved 23 July 2007.
76. FN7676 Farooq, supra note 65.
77. FN7777 Bukhārī, supra note 48.
78. FN7878 Quoted by Mahmoud El-Gamal, supra note 38
79. FN7979 Ibid.
80. FN8080 Personal e-mail from Shah Abdul Hannan on 26 October 2006.
81. FN8181 Personal e-mail from M. Nejatullah Siddiqi, 15 January 2007.
82. FN8282 Conference call on 26 October 2006 with Muftī Barkatullah and Irfan Ahmad Khan, the author of a Qurʾānic commentary, Reflections on the Qurʾān (see supra note 59).
83. FN8383 Al-Buraq Financial Services, ‘Glossary’, online at:, retrieved 21 December 2007.
84. FN8484 Ṣaḥīḥ Bukhārī, Vol. 4, Book 53, no. 358.
85. FN8585 State Bank of Pakistan, ‘Glossary of Islamic Banking’, supra note 33.
86. FN8686 Qurʾān 2 (al-Baqarah): 262.
87. FN8787 Sudin Haron, “A Comparative Study of Islamic Banking Practices”, King Abdul Aziz Univ. J. Islamic Econ., 10 (1998) 23-52.
88. FN8888 Ibid.
89. FN8989 Ahmad, supra note 13, 35.
90. FN9090 Ibid., 37.
91. FN9191 Obaidullah, supra note 17, 54-55.
92. FN9292 Sudin Haron, “The effects of management policy on the performance of Islamic banks”, Asia Pacific J. Manag., Singapore, 13/2 (October 1996) 63-76.
93. FN9393 Qurʾān 2 (al-Baqarah): 280.
94. FN9494 V.K. Arasan, “Rise of of Islamic Banking—Problems and Prospect”, paper presented at the European Association of University Teachers in Banking and Finance, University of Siena, Italy, undated, online at:, retrieved 20 December 2007.
95. FN9595 Qurʾān 2 (al-Baqarah): 280.
96. FN9696 Haron, supra note 88,
97. FN9797 Nienhaus, supra note 15, 130-131.
98. FN9898 Khan and Mirakhor, supra note 9, 353-376.
99. FN9999 Iqbal and Molyneux. supra note 13, 121.
100. FN100100 M. Umer Chapra and Tariqullah Khan, “Regulation and Supervision of Islamic Banks”, IDB Islamic Research and Training Institute, Occasional Paper No. 3 (Jeddah, Saudi Arabia, 2000), 13.
101. FN101101 Ibid., 49, no. 52.
102. FN102102 See supra note 70.
103. FN103103 “Report: Cash Call”, Ripoff Report, 31 May 2007, online at:
104. FN104104 “High-Fee, Low-Credit Predatory Credit Cards Prey Upon the Poor”, Forbes, 1 November 2007, online at:, retrieved 20 December 2007. Also, referring to his paper, supra note 5; Mahmoud El-Gamal, Chair of Islamic Economics at Rice University, states: “My meager efforts to define ribā have come up with the definition: ‘the unbundled sale of credit’, which will cover running credit card debt (ribā al-jahiliyya) as well as unsecured interest-bearing loans (as ribā l-nasī ʾ ah)”. [message posted on IBFnet: #7047, 3 June 2007, accessed at,25 December 2007.
105. FN105105 Attorney General’s office of State of North Dakota, “Scams, Shams and Flimflams”,
106. FN106106 Board of Governors of the Federal Reserve System, “Statement on Subprime Mortgage Lending”, 24 July 2007, online at:
107. FN107107 Rolf Nugent and Leon Henderson, “Installment selling and the consumer: A brief for regulation”, in: John Brainder (Ed.), The Ultimate Consumer: A Study in Economic Illiteracy (Ayer Publ., 1976), 93-103.

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Affiliations: 1: Head, Center for Islamic Finance, Bahrain Institute of Banking and Finance P.O. Box 20525, Manama Kingdom of Bahrain


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