Riba Free Loan in Islamic Finance: Key to Social Development and Welfare

Abstract

Worldwide Islamic financial institutions (IFIs) do not offer loan for avoiding interest/usury, confine their Shariah interpretations to a particular school of thought and offer products for rich people only. Loans are however demanded by the underdeveloped social actors in economy for welfare and development. As per Islam usury (Riba) free loan (Qard – e – Hassan or Dain) is a key to social development. Modern implicit and explicit shapes of master-servant relation among individuals and institutions are legal phenomena with diversified standards and patterns. As per Jaferia school of thought, Islam allows presetting Hadya (gift) in loans among master-servant. These options were utilized by our study for proposing a Pro-Hadya Riba Free Loan among master-servant. Such model of loaning can help stakeholders of Islamic finance improving the existing landscape from pro-commercial creed to pro - social development approach. It is further a potential replacement of fixed rate of interest/usury with Hadya. Such loan can be utilized for turning pension, gratuity, provident fund and other investment schemes Shariah based easily by taking advantage of master-servant setup. Findings and recommendations of this study contributes novel and further invites future research on its engineered model of loaning.