Waqf-Based Qardhul Hassan Should Be Given An Opening

Waqf-based Qardhul Hassan is a financial instrument that provides interest-free loans to the needy, funded by waqf (endowment) funds. While it has the potential to promote financial inclusion and social welfare, several challenges need to be addressed to ensure the successful implementation and sustainability of this practice.

This article addresses two issues. First, why is waqf-based Qardhul Hassan important in Malaysia? Second, what might be the five main challenges associated with it? Furthermore, there are several reasons why waqf-based qardhul hassan is needed. Let me give you the details.

Firstly, it provides interest-free financing. Islam prohibits the charging of interest on loans as it is considered exploitative and harmful to society. Waqf-based Qardhul Hassan provides a mechanism for interest-free financing to meet the basic needs of daily life;

Secondly, it supports livelihood. Waqf-based Qardhul Hassan can be used to provide financing to people in need, especially those who are facing financial difficulties. The funds can be used to support micro-enterprises, provide education and training, or meet basic needs such as food and shelter;

Third, it facilitates community development. Waqf-based Qardhul Hassan can also be used to support community development projects such as community gardens, kindergartens, community halls, village libraries, bridges and animal shelters, to name a few. By providing interest-free financing, waqf-based qardhul hassan can help ensure that these projects are accessible to the entire community, regardless of their financial status; and

Fourth, it leads to wealth preservation. Waqf-based Qardhul Hassan allows individuals to donate their wealth to charitable causes while preserving the principal amount of their donation. By endowing their wealth as waqf, individuals can ensure that it is used for charitable purposes in perpetuity, rather than being consumed or dissipated over time.

Despite the benefits of the waqf-based Qardhul Hassan, there are at least five challenges that need to be considered carefully when offering this facility to eligible Malaysians.

The first challenge is the limited access to acquiring the funds. One of the main challenges of waqf-based qardhul hassan is the limited availability of waqf funds to finance the loans. The number of available funds can vary widely depending on the type of waqf and its management practices. This can result in insufficient funds to meet the demand for qardhul hassan loans, especially in areas with high demand and limited supply of waqf funds;

The second is administrative difficulties. When offered, waqf-based qardhul hassan requires careful administration and monitoring to ensure that loans are given to those who are in need and can repay the loan. This can be a challenge, particularly in areas with weak governance structures or where corruption is rife. There may also be legal and regulatory hurdles to overcome, such as complex documentation requirements or conflicting regulations;

Third, there are human barriers. Some communities may not be comfortable with the concept of borrowing, particularly from a charitable or religious organization. This can lead to limited uptake of waqf-based qardhul hassan, based on their misconceptions about its potential benefits. They have built their spectrum away from the permissibility of the primary sources;

The fourth is a lack of awareness. Lack of awareness about Waqf-based Qardhul Hassan and its benefits is another major challenge. Many people, especially in rural areas, may not be aware of the existence of waqf funds or the possibility of obtaining interest-free loans through them. It is also a mystery that this facility has the same legal implications as existing tawarruq financing and conventional loans. Unlike tawarruq financing and conventional loans, waqf-based qardhul hassan is a beautiful loan, only the principal is returned to the creditor. If there is any extra, it is a voluntary gift from the debtor to the creditor; and

The last is its sustainability. Ensuring the sustainability of waqf-based qardhul hassan is crucial for its long-term success. This requires careful management of waqf funds, as well as strategies to increase demand for loans and diversify funding sources. In addition, the practice may face challenges from changing social and economic conditions, such as changes in government policy, economic crises, or natural disasters.

Overall, the waqf-based qardhul hassan, which has been excluded from the offerings of an Islamic bank since 2006, should now be allowed to regain its potential for social benefit. The benefits of this facility can pave the way. A multi-stakeholder strategy needed to curb the aforementioned issues should be unveiled to enable the formation of the implementation and sustainability of waqf-based qardhul hassan to society at large in Malaysia, at least.