In order to follow Islamic Finance properly, one must understand Islamic law or Shariah. In order to be Shariah-compliant, you must follow many specifics regarding transfers of products or service, sales, leases, rental agreements or loans. Qard means a loan given for something good or to help someone in the name of Allah. Hasan or Hassan means good or acceptable; of good faith.
Qard Hassan is a contract involving a loan with two parties on the basis of social welfare. It also can fulfill a short-term need of the borrower. In modern day terms, many compare this to a payday loan. During the loan process, the repayment amount must be the same as the amount borrowed. This means no interest or riba must be applied to the loan.
However, in terms of good faith, the borrower may pay the lessor more money in the future; yet it cannot be discussed or agreed upon during the contract. This means that if they give the lessor a bonus or extra payment it is permissible, but the discussion of such an arrangement is prohibited. This is often done in a measure of good faith and as a means to thank the lessor.
Ultimately, under Islamic finance laws of Shariah, each loan should always be free of profit. In terms of Qard Hassan, qard often means a bank deposit, which in North American banking means a loan to the bank to use it until the depositor asks for its return. In general, this is considered an interest-free loan. The only permissible loan involving interest is Qardhul Hasam.
Also, a contract such as this must be extended upon in goodwill. The debtor only is required to repay the amount that was initially borrowed with no riba or interest attached to the agreement. This type of arrangement typically doesn’t occur with a Muslim mortgage, however in some good faith arrangements, they can.
This type of loan is regarded as Shariah law and a good act of faith, it is a loan that offers help to those in need with minor reward in the end. It is the most natural and selfless loan available for people of the Muslim faith.